YETI Holdings, Inc. Aktie

I'm Peter Benedict, senior retail consumer products and services analyst. Really pleased to welcome the team from YETI back to the conference. YETI is a premium brand effectively. It's known, I think, most for creating products that bring distinctive design, improved performance and really unmatched durability across several categories, drinkware, coolers and equipment bags and others. Their sales are expected to hit around $2 billion this year. They have a robust balance sheet with net cash, significant free cash flow generation.

The stock carries a market cap of just under $4 billion. Here to talk with us today, CEO, Matt Reintjes; and then recently appointed CFO, Scott Bomar; and we have the Head of IR, Arvind Bhatia, who's out in the room. There will be a breakout session afterwards. So if you want to continue the conversation, the Astra One room.

We're going to kick straight into Q&A here. So guys, again, good morning. Thanks for making the trip. I want to start with maybe a look back here over the last few years, Matt. A lot has gone on. There's been some organizational redesign. There's obviously been supply chain changes. Maybe just talk a little bit about how you've positioned the company now for growth going forward from a leadership standpoint. We think about categories and we think about regions, and then maybe we'll get into specific roles like the CFO.

Yes. Perfect. Thanks, Peter. Thanks for having us, and thanks everyone for coming in this morning. The -- your intro is great. I think you kind of covered it for us. I was hoping we could sort of spike the ball with the intro. But the -- I'd say a couple of things. It has been a busy few years. I just wrapped my 10th year at YETI in September and to think about where we've come from a U.S. really Texas-based business to building a global brand. It's been pretty exciting.

And I think over the last 3 years, the biggest change that we've evolved is how we think about our product organization, how we think about our go-to-market, our regions. And so really, what we've done is we've broken our product groups up into 3 discrete groups. And with the idea and intent that with focus drives impact and it also drives speed to value. And so our 3 product groups, we have a drinkware group that wakes up every day and cares about drinkware. We've got a gear and equipment group that focuses on things like hard coolers, protective storage cases and boxes, which we've mentioned on the last couple of calls, we're excited about what we're seeing there.

And then a soft cooler and bags group, which you've seen over the last few quarters, the impact and results of what we're doing in soft coolers and bags with incredibly talented teams below each one of those. Our soft coolers and bags business is run by a gentleman named Layne Rigney. Layne was the long-time CEO of Osprey. And prior to that, Layne and I had an overlap at CamelBak. Our gear and equipment business, as we think about -- I'm talking about our Drinkware business for a second. Our Drinkware business is run by Hannah Mara. She's been with us for a number of years and has really been leading the vision around the expansion, redefinition and growth of Drinkware.

And if you look at what we've talked about through 2024 and 2025 was the strategy we are driving in Drinkware was relevant diversification. So you think about the things that we've been powering that business, stackables, sports hydration, this early entrance into premium cookware, even with our most recent carbon steel has really been led by Hannah and team. And underneath gear and equipment, which goes to our legacy of hard coolers, Bill Harmon, who joined us from a company called Goal Zero, but a long-time view into expansion of consumer products, outdoor, durable performance, all the things that fit our brand has been great.

And then you combine that with -- we've established 3 very clear regions, an Americas region, an EMEA region, an APAC region with a leader over each, deeply experienced leaders over each of those 3 groups who are -- come from different backgrounds of scale and buildup. So in the Asia Pac region, it's much more of a build and opportunity. In Europe, it's an amplify. And in the U.S., it's continuing to drive depth, growth, scale and opportunity. So we're incredibly excited about the structure we have to go support the strategy of where we're going with this brand.

That's great. And Scott, you joined earlier this year. So maybe give us a sense of where you came from? Why did you come to YETI? What you see as the opportunity?

Yes. I spent the last 20 years working at Home Depot in a variety of different roles, sort of half my time there was operational, half of my time in a variety of different finance functions. When I looked at this opportunity, what I saw with YETI was, of course, first put your finance hat on, it's a strong, clean balance sheet, have the financial resources to invest to do the things that are required to continue to grow the business. But mostly, I just saw several very clear actionable, tangible growth vectors and opportunities that are right there for this brand with broad shoulders to go tackle and the resources and capabilities to tackle them.

And so looking at those 2 things together, just felt like a terrific opportunity. And in my 90-odd days there, just has done nothing thing but reaffirm that belief that I had from the initial onset. And you just see every day, we get a new opportunity comes across the desk about here's a particular application of the YETI brand in a different market or through a different product lens that's right there for us to go get. And it's just really exciting. I think there's just a terrific runway for this business for many years to come.

Yes. And it's interesting. I think as we look back over the last several years, I feel like some of those growth vectors have maybe been held back a little bit because of all what's been going on from a tariff perspective. I mean you had even COVID and supply chain, all the disruptions. Maybe talk, Matt, a little bit about how you've now positioned the supply chain and the sourcing mix, which is now kind of going to allow you to go after those growth vectors and not just be focused on where are you making it, where you're getting it from, what's the cost, that kind of thing?

Yes. I think it's -- so we started our supply chain transformation over the last few years. And I would say that's largely complete from a diversification and optionality. And importantly, the supply chain we shifted through some of the tariff time really was focused around we want to be in the best place to make our product with the highest quality, driving cost, driving availability and really driving speed to innovation. And so I would say the significant heavy lifting part of that work is complete.

We have a much more diverse supply chain today than we did 3 years ago and definitely 10 years ago. And so now it's about applying pressure and speed to chase that opportunity. But if I step a little bit further back, obviously, we went through COVID, we had strong growth. The brand was really scaling the way we wanted going into COVID. We went through COVID and really accelerated that. So the growth performance was strong. The thing that during that COVID period that was most impacted was the innovation engine. It was the thing that was most disrupted. And so we were able to drive the business performance but the innovation pipeline and the execution was more challenged. We couldn't access our factories. Our teams couldn't travel to it.

And so really, that opened up for us in 2022. Well, if you look at what started to happen in 2024 and 2025 and the acceleration and the expansion and diversification of our Drinkware, the expansion of our soft coolers into our Daytrip, the expansion of our Camino totes, driving further bags portfolio expansion, driving further hard cooler. All those things happened coming out of our ability to get back, build on our supply chain, work with our partners. And so that pace really over the last 24 to 36 months has been a result really of being able to put our team back on the task and the opportunity we see in front of us. And at the same time, we're expanding our global audience. We're expanding our global footprint, and that's why I talk about that 3x3 structure at the beginning.

Yes. So growth, obviously, the theme here. Your recent results, I think, started to kind of get the attention of the market. You had a nice beat in the first quarter. I think sales were up 8% year-over-year. You had strength in wholesale, which was up close to 20%. Coolers and equipment, 11%, even drinkware was up 5%. And your profits beat by, I think, more than 40%. So maybe just talk about the performance in 1Q, the demand signals that you're seeing. I think you were seeing them last year, but they didn't really show up and so it was little frustrating, right? The stock didn't behave. But just talk about what you're seeing there on that front.

Yes, maybe I'll take that one, Matt. So look, I think you're right. We had been seeing strong demand signals for a number of quarters. It wasn't a brand new thing. But Q1 was an acceleration from Q4, which was an acceleration from the balance of 2025. Again, there's always going to be lumpiness. We have a reasonably sized wholesale business. So sometimes you get orders around the edge of a quarter and they fall in one quarter versus another. So you get a little bit up and down there. 2025 was characterized by increasing demand signals. However, we had this imbalance between sell-in and sell-through where some of our wholesale partners were drawing down on inventory.

And so we were seeing the customers' affinity for the products and the satisfaction they have with what we're putting in front of them. We just weren't seeing it in the financial results because the sell-in was trailing what we were seeing from a true demand signal perspective. But we saw a breadth of performance in Q1, and we're really excited about that. There's a couple of little fits and starts there where we had a little softness in corporate sales. We had some timing items that affected the international business. But even through all of that, when we looked where we see the customers' demand signals, they're really voting with their wallet. They're happy with the products we're putting out there, and we're seeing strength across our consumer base. And so -- which is why we were able to deliver the quarter and also reaffirm and slightly increase the guidance for the balance of the year.

The growth pillars going forward, I mean I think one of the things that we're excited about is you're going to be hosting an Investor Day in September down in Austin. I think a lot of investors are kind of waiting for that, looking to that as a way to kind of get some confidence in the growth algo. We see innovation, we see distribution opportunities. We see international. There's a lot of ways to go here. But I want to start kind of with the brand because at the end of the day, the brand is what's so critical here.

And I think through all of the ups and downs, I guess, over the last few years, it feels like the brand has been as relevant, if not stronger than ever. So maybe talk about what you think the brand stands for? What -- how do you measure the health of the brand? And what's kind of the permission structure you think the market is giving you in terms of where you can go with the innovation.

Yes. I mean there's a lot in there. You may have to prompt me if I miss anything. I'll start with product, which is not what you said, but our product is all rooted in durability, performance and design. And I think product and brand for us are so inextricably kind of interrelated or interwound. Without great product, a brand can only work so hard, and it can only sustain for so long. And I think that's one of the things that YETI has done for 20 years now is drive great products, great desirability for product and then amplify a brand on top of it.

When I think about our brand and our definition of our brand, we have this idea that it's built for the wild and the definition of the wild in 20 years ago was hunting and fishing in the Texas Gulf Coast. We were just talking before we came up here, the Division I Women's Lacrosse Championship was pretty wild. And there were some athletes on that field that we've equipped with product that outfit the work they do, the grind, the kind of hard work that happens off the field. And so our definition of wild and what it could be has really evolved. While we still show up at fishing events, we're also at climbing events and we're at surfing events and skate events and equestrian events and Western lifestyle, but what's made this brand special is I think we have an incredible discernment of who our audiences are, what's important to them, how our product can support what they're doing, and we show up for them.

We don't buy our way into places. We don't hang banners. It's really a connected authenticity to use a word that probably gets overused too much, but it's really about a realness. And Peter and I were talking a little bit earlier of a story, I mean you take something, Formula 1 is commercial as commercial gets. And Oracle Red Bull racing is one of the flagship, if not the flagship brands within Formula 1. We have a partnership with the Oracle Red Bull racing team, but it started from a basis of they had a need. They had a need at Milton Keynes and they were trying to focus on their sustainability and eliminate single-use and we make incredible cups. So there was a nice synergy there.

Well, then that parlayed into a need within the garage with the Boltis. The Boltis need to keep the engines from overheating. The way they do that is with dry ice. They didn't have a great storage solution for dry ice to put into these blowers to blow through the engines. So they had a very practical need. YETI cooler, they fill with dry ice. We worked with our engineers, made a special scoop for them. Then we became part of the kit. We became part of the team. So it was much more than a sponsorship deal trying to draft off somebody else's brand or somebody trying to associate with our brand. It's really a purpose-driven thing.

And I'd say all the time, we make our marketing dollars work really hard because we do it in an incredibly nuanced way. It's why you've heard us talk about in the past about communities and pursuits in these audiences. And so we can show up at a surf event and we're welcomed in or a skateboarding event or a climbing event or a backcountry skiing event or a cooking live fire. And I think that's really the stacking of what the brand has been built on, but it's not about evolution because evolution means you're sort of leaving behind where you are. For us, it's really about stacking these bricks on top of each other.

And I want us to be as relevant to the audiences that we spoke to 20 years ago as we were then back in the day, and then the newer audiences, and that's why we've talked a lot about sport. I think what's happening in sport right now is one of the most dynamic things about the money going into sport, the focus on sport, at all levels from youth up to professional. And we're making sure that we're not only invited in that our products are relevant and being used there, but that we can be deeply ingrained. And that's a global thing. So it's not -- we're not chasing big headline sponsorships where we want to show up on the ball field on the weekend. We want to show up on the sidelines. We want to be in the collegiate locker rooms. We want to be on the sidelines of I think 2 recent ones, the NWSL, if you watch an NWSL match, we're on the sidelines and partner with the NWSL. LOVB Volleyball. If you watch any LOVB, we've been involved in LOVB early on because we see those things that not only have relevance, but they also have a real influence that water falls down.

Yes. I mean it's really unique. There are only probably a handful of brands that can really resonate with audiences across all those pursuits and feel kind of authentic. It's interesting even within some of the newer categories. I remember a year ago, we were down in Austin speaking with you guys and Layne, who runs the Bags business, was talking about one of the things he found so interesting about YETI was, I guess, within the bags world, there are specific kind of brands that fit, the bikers like a certain brand and the hikers like a certain brand. And it's hard to kind of play across, but he's like, they all like YETI. And so he sees a huge opportunity in the bags business.

That's leading me to my next question, which is we know there's more innovation coming in hard coolers, and we know there's more innovation coming in Drinkware. But what about these non-legacy categories. Talk a little bit more about bags and where you see the portfolio going?

Yes. I'll bridge to -- I think 2 things, we continue to see growth opportunity in what people would define as our legacy. And if you really looked into take Drinkware. What drinkware was in 2014 was 2 cups. Drinkware today covers the range of tumblers to something like I'm holding a stackable cup to food transportation all the way up to this kind of newer edge of us in cast iron and carbon steel skillets. So we see that opportunity.

The other one is the U.S. for us, while we talk a lot about the international global growth opportunity, the penetration -- the continued penetration opportunity in the U.S. of use cases, consumers, places we can sell we think it's really attractive, and you saw that on display in Q1. As you move into these newer categories, underdeveloped bags and I would include soft coolers in that, we think it is significantly underpenetrated for what it can be. And if you heard us call out our Daytrip, which is our day thermal bags have had an incredible run over 2025 and 2026. And I think it's the mix of use case price point, audience expansion that fits within that. The Camino tote has had a really a really nice pickup. It's been one of our -- frankly, it's been one of our best products for a really long time, and it gets found by audiences that find additional use cases for it.

But when you think about the breadth of opportunity within bags and soft coolers, you can move up and down the price stack, you can move up and down the use case. And so earlier this year, we launched our Skala hiking backpack. It's a multi-day hiking pack. To what Peter said, it's a space where you need to break into the club, the product needs to back up. It's not just -- you don't buy your way and the brand doesn't push its way in. That's a little bit of Layne's point. And I think what we saw with the Skala reception from that audience was a validator that then sets a halo for things that we can do in broader applications.

So we think about bags in terms of 3 big groups, think about every day, things you commute with, the things you move around with. If you go through the airport, 100% of people have a bag of some sort, either a piece of luggage, backpack, duffle bag, multiples in many cases. So that environment is a really large TAM where we think there's an opportunity to continue to differentiate, but also own. So every day, then you go to travel, trave the piece I just talked about. And then the third one is adventure pursuit-specific type packs like these day packs. And so we're attacking the market opportunity across all 3 of those, not just domestically, but the global opportunity that we see. And so I think there's a good long runway. And as you said, I think what we've seen are the proof points of willingness, acceptance, realization of YETI taking its durability, performance and design and transitioning into that.

I think you've also seen some good acceptance internationally. It's about 20% of your sales right now, expected to grow 18% to 20% this year. I know the majority of that is Canada, Australia, but you're into the U.K., you're into Germany, Japan, some other things on the horizon. Maybe talk a minute about the international opportunity, how you go into these markets, product, channel, distributors. What's the playbook here internationally.

Yes. I mean we've said before, the playbook -- we've seen the playbook travel. And that doesn't mean a carbon copy of exactly what we did in the U.S. But the elements that we've seen, I'll start structurally and then I'll maybe move through to brand. Structurally, we've seen receptivity to e-commerce in the markets where it makes sense and it's relevant, marketplaces building out referential wholesale to the places where people go to find new things and find cool and then building into a broader-based wholesale.

And we've seen that -- we saw that in Australia. We saw it in Canada. We have seen it and are continuing to see that opportunity in the U.K. as we started in surf shops and boat yards and now we're moving into broader sporting goods and then moving further into the urban cities. So from a go-to-market, the mix may look a little different. The way the markets develop may look a little different, but the relevance of how you intersect the consumer has stayed sound. The product portfolio, as we've transitioned the product portfolio to global, we're leveraging our same product portfolio that we've developed, but it's the assortment within that, that's changed.

Simple things, size, space and some markets are more important. So that leans towards and some just stylistic, 30-plus-ounce drinkware, less a globally relevant product, something like I'm holding, which is 8-ounce and fits under an espresso machine, more relevant in some markets. And so finding that nuance, color is another thing. Different markets have different color needs and desires. So we look at that. But I would say from a brand perspective, the brand playbook absolutely is working.

We didn't take and export the brand as it was 10, 15 years ago at YETI, we exported the brand with the playbook we have where we could be relevant to what was mature and relevant in that market. So places like Central Europe, hiking, backcountry skiing, adventure sports, those things we push a little bit harder to. In the U.K., it could be equestrian, rural lifestyle, cooking, live fire. And so those sport, those have all been things that we have a broad enough playbook that fits underneath this brand that we can actually draw the right analogy. In Japan, food, beer, surf, hike, snow sports, all those play in Japan.

Yes. So I think one of the unlocks of the stock late last year starting to show this return to growth, but also you kind of teased out the Phase 1 of the long-term algo, which was a high single-digit to low double-digit revenue growth, which at the time, the stock was in the mid-30s, and I think it was reflecting low single digit at best. And so we're seeing another move in the stock right now.

I think the September Investor Day has made a lot of interest in terms of, okay, what is that -- how do you get there? But more so also, what does that mean for margins? Is there a big investment cycle that has to maybe be laid out here in order to achieve that? Or are there productivity levers here that will allow you to kind of fund that growth. So maybe just -- you're not going to give us -- give it all away, but maybe some breadcrumbs here is how you're thinking about margins and profitability as part of this longer-term view.

We definitely want some people to come eat some barbeque in September. I shouldn't give it all away, right?

Yes, we definitely won't give it all away. But yes, look forward to seeing you all in September. Look, as we build the building blocks, I think one of the important parts of this business model is it is a diversified model, diversified product set, diversified go-to-market channels and geographies, which provides this foundation of multiple building blocks to help get us all the way to that high single, low double-digit algorithm.

As we think about margins, look, Matt and I talk about this virtually every day. Yes, expansion globally requires investment. There's things we'd like to do from a marketing perspective. But we have to look for ways to continue to drive efficiency and productivity in the business to fund that. We think there's opportunities to do that. And so we think we can have a balanced perspective. We don't expect some big investment cycle that's going to peel our profit profile in an adverse way. We intend to continue to find those areas of productivity to fuel the investment. And we do think there's opportunity for upside margin expansion, and we'll lay that out more clearly in September.

That's great. Lastly, just around kind of maybe capital allocation, $130 million in net cash, $200 million plus of free cash flow. Let's talk about stock buybacks. You increased the authorization. How should we think about that. You've done ASRs in the past. I don't know if the plan is to be more just consistent with that or those. And then M&A, I know we have 3 minutes left, but let's hit on the front.

Yes. Capital allocation, look, our principles are the same, right? We're going to continue to look for areas to drive the business forward. We like execution of returning capital to shareholders through the form of share repurchases simply because we think it's a great return for our shareholders. And we see the prospects in this business and think that's a great way to return capital to those that invest in us. And Matt, do you want to handle the M&A question?

Yes, I would just say, I mean, obviously, start with buybacks because the ratio of what we've done in buybacks to anything related to inorganic innovation is obviously, buybacks are the priority. I think when you think about the idea of us doing something inorganically, I think we've got enough proof points out there of now you sort of get what we're trying to do. When we see something where there's something that's undersized, an underknown brand, has a technology capability, in some cases, talent that we can bring in to accelerate something that's on our road map.

Most things are doable with time and doable with resource, and we have an incredibly talented and capable engineering innovation and product development team. But for us to go jump on something faster. So if you look at the shaker bottle, we closed that deal. We had a YETI version with a new material package, which allowed for it to be dishwasher safe. We had a new lid design back in the market late in 2025. We took some DNA from the backpack acquisition. That DNA is being pulled through wholly new YETI products and accelerating that. So we look at it more as a jump-start and accelerant versus a consistent ongoing strategy. I would say it's an opportunistic, but we see everything that's out there in the market. So we're really discerning about what we think is additive to what we're trying to do, right, which is build this brand.

Yes. All right. Great. Well, we're up on time. But again, Astra room for the breakout, but join me in thanking the team from YETI.

Good morning, ladies and gentlemen, and welcome to the YETI Holdings First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

This call is being recorded on Thursday, May 14, 2026. I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations at YETI. Please go ahead.

Good morning, and thank you for joining us to discuss YETI Holdings' first quarter fiscal 2026 results. Leading the call today will be Matt Reintjes, President and CEO; and Scott Bomar, CFO. Following our prepared remarks, we will open the call for your questions.

Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law.

During our call today, we will be discussing certain non-GAAP measures. We use non-GAAP measures in certain context as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com. I would now like to turn the call over to Matt.

Thanks, Arvind, and good morning, everyone. We appreciate you joining us today. Looking at our first quarter, we're very pleased with our performance, but Q1 reinforced something more fundamental about YETI, the earnings power of the model. Demand is more diversified, our platforms are scaling more efficiently, and our operating system continues to execute with discipline in a dynamic and often unpredictable environment. Importantly, we've entered the second quarter with global demand trends showing strength, continuing momentum from the last 2 quarters.

Scott will walk through the financials and outlook in detail, so I'm going to focus my time on what matters most from an investor perspective. What is getting structurally better in the business, why our advantages are durable and defensible and why we believe YETI is positioned to deliver sustained growth and compound value over time. I'll start with 4 key takeaways from Q1. First, demand for YETI is resilient, diversified and increasingly repeatable. In the quarter, we saw broad-based strength across categories and channels. That diversification matters because it reduces reliance on any single product cycle or channel dynamic and allows us to invest consistently behind innovation, brand and capabilities without chasing short-term volatility. Across our core product platforms of Drinkware and Coolers and equipment, performance was driven by the right assortment, augmented by innovation and amplified by our omnichannel model. That combination continues to be a strategic advantage.

Second, our business is delivering strong growth as we are moving past some of the market dynamics and supply disruptions that we faced last year. Importantly, we're broadening our customer base while building upon our core. Innovation continues to attract customers, particularly in newer categories like bags, soft coolers and sports hydration drinkware, while repeat purchasing and retention remains strong. At yeti.com, 12-month retention held steady, while lifetime value continued to grow. Our consumer metrics reinforce this strength. In the U.S., brand awareness, consideration and preference increased across coolers, drinkware and bags, with bags reaching their highest levels since tracking began in 2022. Brand NPS remained healthy across demographic groups. Product satisfaction is approximately 98% and nearly 2/3 of our survey customers now own products across multiple categories. Taken together, these indicators point to a brand that is expanding its reach while maintaining its promise, which is exactly what we aim to deliver.

Globally, we continue to accelerate to scale with strong economics. This remains a compelling and addressable long-term growth opportunity, and we are still early in unlocking it, even with international trending towards 23-plus percent of full year sales in 2026. As Scott will discuss, we expect to deliver at our guided growth levels for international in 2026 with strong gross margins and overall contribution to YETI. Our approach internationally is deliberate and repeatable, right assortment, right distribution, localized activation and disciplined investment. In Europe, we continue to expand doors and invest in awareness with improving productivity in our top accounts. In Asia, Japan is in the ramp phase, while Southeast Asia continues its rollout and China and Korea remain targeted for the second half of the year. Canada and Australia remain our largest international markets and despite macroeconomic pressures, we expect solid full year performance from both.

Third, Drinkware is proving it remains a scalable, durable platform. We delivered a second consecutive quarter of Drinkware growth with global drinkware up 5% year-over-year, including growth in sell-in and sell-through in the U.S. This performance was not driven by a single hero SKU. The key point is that growth is broadening across the platform, supported by refreshed core products, targeted extensions and disciplined pricing and promotional posture, reflecting innovation and newness including stackable cups, chug bottles, ceramic mugs and the Yonder Shaker bottle. Drinkware today is about platform health, cadence and discipline and those are the drivers of durability.

Drinkware not only has a solid foundational cash-generative base but also drives incremental upside from proven adjacencies. We see additional runway deepening our presence in sport and fitness hydration which continue to attract younger consumers and new use cases, making it additive to the platform and expanding the addressable market over time.

Shifting to Coolers and Equipment. In Coolers and Equipment, we delivered double-digit growth led by soft coolers and bags, Daytrip and Camino continue to outperform, extending YETI further into everyday use while remaining true to our heritage of toughness and reliability where supply has been constrained, demand remains strong. Fill rates in certain soft cooler and bag programs ran short through 2025 and into Q1 2026, with demand carrying through into the current year. Additional capacity coming in the back half of the year should allow us to better capture that demand. That matters for 2 reasons. It's a near-term growth lever as availability improves and it reinforces the long-term opportunity in our ecosystem of bags, soft coolers and carry solutions used repeatedly across everyday occasions.

In hard coolers, seasonal color innovation supported the category as we lapped prior year product transitions. Cargo performed well across platforms with particular strength in the GoBox 1 protective case establishing a foundation for future expansion coming in 2026. Fourth, wholesale momentum is validating brand strength and product relevance.

Global wholesale grew 19% year-over-year, our strongest wholesale quarter in more than 3 years, driven by consumer pull across both U.S. and international markets. The headline growth is notable, but what matters most is what's underneath it. Double-digit sell-through growth in the U.S., balanced inventory positions and strong partner confidence in our expanding innovation pipeline. U.S. wholesale inventories remain well managed and aligned with demand across major categories. Our approach to the channel remains disciplined and consistent, protect brand presentation, maintain premium positioning and prioritize long-term shelf productivity, not short-term volume.

Within D2C, demand was strong across e-commerce, Amazon and YETI stores, offset by softer corporate sales. Importantly, underlying consumer demand across our owned and marketplace channels tracked well with our overall growth. Performance was driven by seasonal color launches, expanded customization and meaningful enhancements to our U.S. and Canadian websites, improving conversion, add to cart rates and average order value.

We also continue to invest in digital capabilities like our AI-driven shopping assistant Ranger. Ranger enhances consumer experience, improves conversion and scales efficiently as our assortment grows. We view it as a long-term capability, not a short-term tactic. We recently launched our TikTok shop and are approaching it deliberately as a channel for authentic storytelling and reaching younger consumers. We'll scale based on performance, repeat behavior and brand standards. While corporate sales was softer due to order timing and a slower global corporate environment, we are managing this channel pragmatically. It is attractive, but we will not chase volume at the expense of brand integrity or pricing discipline. The bottom line, the year-over-year performance in D2C was driven by corporate sales timing in a more cautious global corporate environment, not a change in consumer engagement with the brand. As we think about our P&L resilience and opportunity, the discipline with which we are executing is especially important in the current environment.

As Scott will walk through in more detail, we're navigating peak tariff impact in the first half with second half gross margins recovering most of the year-over-year pressure. The structural margin drivers of mix, sourcing and pricing are counterbalancing cyclical inputs, including tariffs and costs related to global energy pricing. We believe these are known and transient headwinds, not long-term structural issues. Our diversified supply chain and pricing discipline gives us flexibility. And as we move through the year and lap some of these impacts, we expect margin performance to improve while continuing to invest behind the brand and innovation.

Turning to why YETI's advantages are durable and defensible. We believe YETI's moat rests on 3 reinforcing pillars. First, brand trust and authenticity. YETI's not a logo. It's a broad reputation earned over time. As you may have seen in our recent 4-letter brand campaign and platform released last week. Consumers choose YETI because they believe it will perform, it will last and it will be designed with purpose. That trust drives consumer pull, supports premium positioning, increases repeat behavior and lowers marketing friction. It also makes innovation more efficient because consumers are willing to adopt what we build next.

When a brand owns trust in its categories, it creates a durable advantage that is difficult to replicate. Second, scalable product platforms. We build platforms not one-off products. Platforms like drinkware and coolers and equipment allow us to reuse design DNA, supply chain expertise and brand credibility while expanding usage occasions and deepening consumer relationships. As we look at products launched in the last 24 months, these generally represent approximately 25% to 30% of sales in key categories as we continue to shorten development cycles and improve speed to market, driving innovation. While innovation plays a key role, this also displays the power and impact of legacy products as these continue to capture a long tail benefit, reinforcing the product development stacking effect. This is how we generate compounding returns, strong base, meaningful improvements, thoughtful extensions and new use cases that fit the brand and strengthen the ecosystem.

Third, a disciplined global omnichannel model. Wholesale expands reach and discovery, owned DTC deepens engagement and loyalty. Marketplaces add access and convenience and corporate sales drives engagement. When managed with discipline, these channels reinforce each other and reduce the reliance on any single source of demand, increasing resilience across cycles. Overall, YETI's built for upside and for durability against positive brand momentum and global demand, we have a differentiated brand with loyal consumers, scalable product platforms that refresh demand, a diversified omnichannel model and a flexible, diversified supply chain. And we pair that with a fortress balance sheet, more than $425 million in liquidity and approximately $70 million in debt and a strong free cash flow with roughly $500 million returned to shareholders through share repurchases over the past 2 years, and an upsized $500 million share repurchase authorization, all while maintaining the ability to invest through cycles and allocate capital opportunistically.

Let me close by being explicit about why we believe YETI can deliver sustained growth and compound value over time. First, brand power compounds as YETI shows up in more everyday moments, brand meaning deepens, supporting pricing integrity, repeat purchase and lifetime value. Second, platform scalability improves efficiency and reduces risk. Extending platforms allow us to grow with discipline while maintaining premium standards. Third, international runway is real and still early. Premium performance-oriented brands can travel when built with authenticity and executed with discipline. Fourth, omnichannel diversification increases resilience. Discovery, loyalty and access work together to reduce volatility. Fifth, operational discipline supports per share value creation. Strong cash generation funds innovation, expansion and disciplined capital returns. This is a company with durable advantages and a clear path to compounding across cycles.

And taken together, these drivers support a long-term top line growth algorithm in the high single to low double-digit range, driven by core platform performance, new category adjacencies and international expansion. When combined with margin expansion and buybacks, we have a model with the potential to drive earnings and free cash flow faster than top line growth over time. Our guidance implies we'll be within that growth algorithm starting in 2026. We'll go deeper on our long-term growth algorithm, margin framework, innovation road map and capital allocation priorities at our Investor Day now targeted for September.

Stepping back, YETI is not a single product story, a single channel story or a single geography story. We're a brand-led platform business with multiple engines driven by authentic consumer demand enabled by scalable innovation platforms and strengthened by a diversified global omnichannel model. In a market that continues to shift, whether due to consumer behavior, promotional intensity, tariffs or geopolitical uncertainty, durability is the point. We built YETI to endure, to protect brand equity and to play offense when opportunities present themselves. That mindset has guided us for more than 20 years, and it continues to shape how we run the business today.

As we celebrate YETI's 20th anniversary this year, the first quarter reinforced our confidence in the strength of the brand the sustainability of demand and the operating system we've built. We are seeing continued momentum in Q2 and are excited about what's ahead as we continue to innovate, broaden the brand thoughtfully, and build a scalable global growth engine while maintaining discipline and compounding value over time. As always, I want to close with a thank you to our partners around the world and especially to the YETI team.

Before I turn the call over to Scott, I'll close by acknowledging what a pleasure it has been to have Scott join us during this incredible moment in time for YETI. He's off and running, helping drive our strategy and support our execution against YETI's potential. With that, I'll turn the call over to Scott.

Thanks, Matt, and good morning, everyone, and thank you for joining us. As many of you know, I joined YETI earlier this year, and I'm extremely excited about the opportunity ahead for this amazing company. YETI has built on the strong foundation of an authentic premium global brand supported by disciplined execution that results in a compelling growth algorithm. From YETI's IPO through 2025, sales have increased at a 13% compounded annual growth rate and adjusted EPS has grown at a 15% CAGR.

Over that same period, YETI has generated nearly $1.4 billion in free cash flow and reduced shares outstanding by 11%. International revenue mix has grown from 2% to 21% resulting in a truly global company with a diversified omnichannel model. Our key growth initiatives of reaching new audiences or category expansion and global expansion are each contributing in a meaningful way working together to sustain a long-term growth rate in the high single to low double-digit range.

With that, let's dive into our performance for the quarter, following which I'll provide an update on our outlook for 2026. After my prepared remarks, we look forward to your questions.

Our first quarter performance reinforces the strength of the brand and the durability of our long-term growth strategy. We began 2026 on a strong footing with an increasing momentum across key business segments coming out of Q4. Starting with our overall top line performance. In the first quarter, we delivered sales of $380.4 million or growth of 8.3% year-over-year. Growth was broad-based across categories and channels and came in at the top end of our initial full year outlook range of 6% to 8%. Turning to our performance by category. In Drinkware, sales grew 5% to $217 million, our second consecutive quarter of mid-single-digit growth in the category overall and a return to growth in the U.S. Drinkware business. These results reflect the durability of our drinkware business and our ability to drive sustained growth through innovation and audience expansion. Coolers & Equipment sales grew 11% to $156 million, with strong performance across soft coolers, bags, hard coolers, cases and storage.

Innovation in the category continues to drive our business as we bring new products to market and infuse color to support our core platforms. Daytrip and Camino remain standout performers, and consumer engagement for these products continues to be strong. While demand for these products is currently outpacing supply, our inventory position is improving and should support sustained growth in the category. Looking at our performance by channel. Wholesale sales increased 19% to $184 million, our best quarterly performance in more than 3 years. During Q1, sell-in trends were better aligned with sell-through trends, which have remained strong. Channel inventory remains healthy, which bodes well for performance in the wholesale channel in the upcoming quarters. Our teams are working closely with retail partners as they thoughtfully replenish inventory to support strong consumer demand across categories. Direct-to-consumer sales were flat at $197 million. Consumer demand was strong across our owned e-commerce, Amazon Marketplace and YETI retail stores with performance in these channels coming in line with our overall sales growth for the quarter.

However, sales in our corporate sales channel declined year-over-year, driven by caution from corporate buyers, challenging comparisons to last year's strong results and some order timing dynamics. As we look ahead, we're encouraged by the improvement we've seen in the trajectory of corporate sales thus far in the second quarter. Moving to our performance by region. In the U.S., sales increased 8% to $293 million, supported by growth across coolers and equipment and drinkware. Demand remained strong across wholesale, e-commerce, Amazon and retail, partially offset by softness in corporate sales. International sales grew 9% to $87 million, including FX favorability of approximately 800 basis points. Underlying consumer demand in our international markets remain strong. However, growth here in Q1 was impacted by a decline in corporate sales. As you saw in 2025, international growth can fluctuate quarter-to-quarter, but the long-term growth trajectory is as strong as ever, and we continue to estimate our international sales growth for the full year to be in the high teens to 20% range.

Our international focus remains on driving underlying consumer demand, strengthening brand equity and the significant runway ahead. As we expand consumer reach, deepen market penetration and scale in priority markets, we continue to build a scalable multi-market growth engine. Looking at our key international regions in Europe, consumer demand across categories and channels remains very strong, supported by rising brand awareness, expanding wholesale distribution and deepening engagement across markets. In Australia, while macro pressures weigh on discretionary spending, brand strength remains intact, and we continue to see a meaningful opportunity to expand YETI's presence over time. Performance in Canada was supported by customization, corporate sales and wholesale. In Japan, momentum continues to build, driven by expanded wholesale partnerships, the recent launch of our e-commerce platform and growing enthusiasm from consumers.

Now moving down the P&L. Adjusted gross profit was $210 million or 55.3% of sales, a decrease of 200 basis points versus last year. This included a 280 basis point headwind from higher tariff costs year-over-year as well as the unfavorable impact from a lower mix of our D2C channel. This is partially offset by lower product costs and the favorable impact of foreign currency exchange rates. Adjusted SG&A was $184 million, up 10% year-over-year. As a percentage of sales, adjusted SG&A grew 100 basis points to 48.3%, reflecting continued growth investments in facilities, including 2 new stores, sales and product development headcount to support our international expansion, and technology to support our digital businesses. Adjusted operating income declined 24% to $26.6 million or 7% of sales. Adjusted net income decreased 23% to $19.8 million or 5.2% of sales and adjusted EPS declined to $0.26 from $0.31. This year's results reflect an incremental unfavorable net tariff impact of approximately $0.09.

Turning to our balance sheet. We ended the first quarter with $127.8 million in cash as compared to $259 million in the prior year quarter. This year-over-year decline in cash is primarily related to the elevated level of share repurchases executed through 2025. We continue to manage our inventory effectively as inventory decreased 4% to $318 million. Total debt, excluding finance leases and unamortized deferred financing fees was approximately $73 million compared to $77 million at the end of last year's first quarter. We remain committed to investing in the business to drive sustainable growth and long-term shareholder value, with strong free cash flow generation and share repurchases. Now turning to our fiscal 2026 outlook. With strong Q1 performance, our confidence in the full year outlook is even greater. That said, Q1 is seasonally our smallest quarter of the year, and we recognize that it is still early in the year, and we're cognizant of the macroeconomic uncertainty that still exists.

Based on the Q1 sales momentum, we are raising the low end of our full year sales growth rate expectation. We now expect full year sales growth of 7% to 8% from the previous outlook of 6% to 8%. From a phasing perspective, we anticipate the total sales growth rate will be relatively consistent throughout the rest of the year. We are also reiterating our growth expectations across channels, categories and geographies. By category, we continue to expect high single-digit to low double-digit growth in coolers and equipment, supported by the momentum we see across soft coolers, bags, hard coolers, cases and storage. In Drinkware, we continue to expect mid-single-digit pacing for the year, driven by increased innovation, the continued broadening of our portfolio and global expansion. By channel, as a result of strong customer traffic and merchandising innovations at our wholesale partners, we expect wholesale channel to grow at a slightly faster rate than the direct-to-consumer channel this year. By region, in the U.S., we anticipate low to mid-single-digit growth for the full year.

As I mentioned earlier, we continue to project international growth in the high teens to 20% for the full year. With respect to gross margins, we are raising the lower end of our gross margin expectation for the year. We now expect full year gross margins at 56.5% to 57% compared to prior year guidance of 56% to 57%. At the midpoint, this is a 60 basis points decline year-over-year compared to our prior guidance of a 90 basis point decline. The increase reflects the benefit from lower realized tariff rates, partially offset by higher commodity and inbound transportation costs. Please note that our outlook does not include an assumption for the recovery of any potential IEEPA refunds given the significant uncertainty on the amount and timing around it.

From a phasing perspective, we expect year-over-year gross margins to decline by roughly 200 basis points in the first half of the year followed by year-over-year expansion of approximately 50 basis points in the second half as we lap the tariff impacts from the second half of 2025.

As it relates to OpEx, we expect full year growth of between 4% and 7% relative to 2025, reflecting operating leverage and ongoing cost discipline. From a phasing standpoint, we continue to expect higher OpEx growth in the first half, moderating in the back half, driven by the timing of our brand marketing spend and a return to a more normalized incentive compensation accrual pattern in 2026. We now expect 2026 adjusted operating income margin to be approximately 14.6%, up 20 basis points compared to 2025 and compared to our prior guidance. We now expect adjusted operating income growth of 8% to 10% for the full year, compared to prior guidance of 6% to 8% growth. Due to the year-over-year impact of tariffs, the shift of brand marketing timing and incentive compensation expenses in the first half of the year, we expect first half operating margins to decline by roughly 450 basis points offset by an approximate 350 basis point improvement in the second half.

Turning to the remaining P&L items in our guidance. We continue to expect an effective tax rate of approximately 24% and diluted shares outstanding of approximately 76.6 million compared to 81.6 million in 2025. This reflects the full year impact of nearly $300 million in share repurchases during 2025 as well as an additional $100 million in share repurchases planned for 2026. We expect adjusted earnings per diluted share of between $2.83 to $2.89, reflecting growth of 14% to 17% compared to prior year guidance of $2.77 to $2.83 or growth of 12% to 14%. This increase in EPS relative to our prior guidance reflects slightly higher operating margins of approximately 14.6% for the year versus our prior expectation of 14.4%. Capital expenditure expectations are unchanged and expected to be between $60 million and $70 million for the year.

We remain focused on investing and advancing our technology, launching innovative products and strengthening our supply chain. We continue to expect free cash flow of between $200 million and $225 million in 2026. As it relates to our share repurchase program, our Board recently increased our share repurchase authorization by approximately $350 million, bringing our total remaining outstanding authorization to $500 million. The first quarter marked a strong start to the year and reinforce the momentum we are seeing in the business. Our performance speaks to the durability and strength of our brand, we are incredibly grateful for the continued operational excellence of our global teams. With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions]

Your first question comes from Randy Konik from Jefferies.

I guess I want to get a feel for your confidence in the high single-digit kind of revenue guidance for the year. You came in with a better-than-expected top line for the first quarter. And yet you talked about some holdbacks in the numbers with corporate sales down bag demand outstripping supply and then some international, I guess, some volatility there. So if we assume that corporate sales, I think you said were starting to improve bag supply will start to improve relative to demand later in the year, and I'm sure international doors are being opened. Do you feel pretty firm about this revenue guide on the top line? And then kind of how does that inform your view of what you said on the call of a high single-digit, low double-digit type of grower in the medium to long term?

Good morning, Randy, thanks for the question. I'll start with incredibly pleased with how the year started and including the comments we made on the call about the start to Q2. I think it shows both the durability and the potential of the model, our portfolio, our go-to-market, and our growth engine. And so we feel really good about the way the year is shaping up. And really on the back of the continued U.S. strength, the drinkware strength that we called out on the call, the acceleration in growth in coolers and equipment driven by the diversification of the product portfolio, in particular, the soft coolers and bags. So we feel really good about the model coming into the year and that it's intact.

The things -- the corporate sales in Q1 corporate sales can be -- they can be episodic. We saw some orders that didn't repeat this year that were in last year's number. But you roll over those, and we feel good about how the full year and we feel good about the trend that we're seeing in corporate sales. I think international continues to be an incredible opportunity. We have as strong a team as we've ever had. We're opening and accessing new markets. We're getting new placement. We're opening wholesale doors. We're continuing to drive the D2C business. So the feedback we continue to get is kind of all forward progress and feel good about the year, as you heard from Scott's comments. So coming out of Q1, going into Q2, the biggest part of our year is coming up, but that's really where YETI has shown it can excel. So we feel like the model is intact. We feel like the guide for the year with the raise today is solid and intact. And we continue to see the long-term growth algorithm and the buildup to it and the potential and chasing the possible.

And then just to elaborate on the comments around being able to grow EPS and free cash flow faster than the sales commentary. You've shown remarkable resilience in kind of managing through different kind of headwinds around that would impact margin structure. Can you kind of give us some things that you've kind of implemented over the last few years kind of help you manage through different little hiccups that kind of pop up, let's say, tariffs or as you pointed out, some rising input costs, what have you, that impact on margins, but you're offsetting that with some sourcing flexibility, pricing and mix in the channels.

Just kind of walk through what you've been doing and what you're doing going forward to kind of give continued confidence in the margins where they are today, and it sounds like margins are going to continue to move a little bit higher in the years ahead.

Yes. Thanks, Randy. There's a lot in there. I would start with when you look at our model, the diversification of our channels to market and our go-to-market and the replication of that globally gives us a lot of flexibility, resilience and opportunity. The second one is, over the last number of years, we've been talking about the broadening, strengthening, diversification of our product portfolio. which again gives us different price points, different use cases, different purchase occasions with a broadening consumer audience.

And so from a commercial go-to-market front end, a lot of levers for growth and durability. I think what you've seen over time is the incredible talent and flexibility we have in our supply chain, whether it was tariffs in the 2018, 2019 transition, the more recent tariff increases, the container cost evolution. We've been able to manage through those because we have built a nimble supply chain that can flex, and that's really on the back of an incredibly talented team that around the globe that drives that focus. What that allows us to do is have flexibility to support our go-to-market to support our product portfolios. It allows us the ability to generate the free cash flow that we've been able to generate while also absent what we would consider transient shocks or transient costs drive continued margin strength and all those lead to EPS -- compounding EPS growth.

And then the ability to leverage our free cash flow to return value to shareholders, and we've done that through buybacks as we've shown in the last couple of years and as we signaled for this year. So we feel like the model top to bottom is more resilient, stronger, more leverageable and lots of potential in front of it.

Your next question comes from Peter Benedict from Baird.

First, I just wanted to see, are there any other action plans in the strategy around corporate, kind of understand that, that's a -- can be an episodic business, Matt, as you said, but just curious if there's anything else going on beneath the surface in terms of how you're approaching it, how you're viewing it over the balance of the year. And if you can just give us a sense for the size of corporate. I think historically, it's been in the 20% to 25% of your DTC sales. I'm not sure if that's still the case and if there's any difference between the U.S. penetration and the international penetration. That's my first question.

Peter, thanks for the question. I'll take the front end of the corporate sales potential and then Scott can step in. What I would say is we continue to believe in the untapped potential in corporate sales. We see opportunity all over the place and that's not just in the U.S. but around the globe. Our corporate sales is made up of some big partnerships that we do, that we talked about. Some larger corporate orders, but then there's just an underlying hum to that business.

And I think we attack that in 3 different ways from an action plan and operational perspective. We have an active sales team that's out generating the opportunities that are in that kind of third bucket. That's really an action-oriented business. The second -- the big, bigger corporate orders, we're judicious about how many of those we want to take on because they can be lumpy. Both of those groups are really a sign of brand strength, demand, desirability of our products for a premium good. And then the partnerships bucket, as you've seen over the last couple of years, we've gone out and built globally some really powerful partnerships that work in a couple of different ways. They have a corporate sales component. They also have a brand, brand building, brand awareness, exposure component to it. And so we really think about our corporate sales in those 3 buckets of run rate corporate sales, large corporate orders and then partnerships.

And we have active teams that focus on all that. And that's really what we've turned on in Q2 after the slower start in Q1, and we'll continue to do it. It's just part of our operating rhythm.

And so just to add a little more color to that. The corporate sales business is approximately 25% of our D2C business overall. And while we haven't broken out the specific impact to corporate sales to D2C, I'd just leave you with the other pieces of that particular channel, our retail stores, yeti.com and our marketplace partners all grew high single digits for the quarter. So it gives you a sense for the impact that we saw from corporate sales to D2C.

All right. Great. My follow-up is just on the international and the growth outlook for the year, still high teens to 20%. I'm curious what the FX assumption is there, any view on kind of constant currency growth as you start to, I guess, ramp up things like Korea and China in the back half of the year and other things.

Yes. Sure. A couple of comments on international. Just as a reminder, the first quarter is less than 20% of our overall revenue for the year. So it's the smallest quarter by a meaningful margin. And so there is quarter-to-quarter noise that happens and we saw some of this in 2025. So we do get lumpiness of demand patterns from wholesale partners, overlapping large sales and corporate sales. So some of those things do weigh on the quarter and we saw that.

There was an FX tailwind that we saw in Q1 of approximately 800 basis points to total international growth. If you play that forward and you take that and quantify that impact for the full year, it mutes and we don't -- of course, we don't know where FX rates will land for the balance of the year. So we don't view that as a huge driver for the balance of the year. We expect the 18% to 20% includes a little bit of FX benefit of the observed amount from Q1, but we're not building it a lot as it relates to second, third and fourth quarters. So we feel really good about the underlying demand we're seeing across the international business. And it is again, some of the breadth of the power of the YETI model of having diverse channels, diverse markets, and we're seeing that strength, and we feel good about the trends that we've observed so far in Q2 for international.

Your next question comes from Phillip Blee from William Blair.

So there's a lot of puts and takes with gross margin right now between tariff changes, higher transportation costs, rising product input costs like resin. So can you maybe just walk through your exposure to these pressures? And then your level of confidence in being able to offset and then what role, if any additional price increases play? And then is there any reason we should assume that the gross margin decline year-over-year will get a little bit better in Q2 than where we were in Q1?

Great. So let me give you a little background on this. When we set the guide for 2026, we did so under the assumption that IEEPA tariff rates of approximately 20% would persist throughout the year. Obviously, that's a very fluid environment, and we've seen lots of changes there. In late February, those tariffs were overturned and replaced by the Section 122 tariffs at roughly half the rate. And so that change was not contemplated in our guide.

Now our base assumption at the moment is that those tariffs when the expiration of 122 occurs, they will resume back to the 20% range in July. Again, fluid situation. We'll see how that actually transpires. The net benefit from a tariff perspective of that change relative to our original guide was approximately $15 million. And then roughly 2/3 of that $15 million was offset by pressures that we've seen related to fuel prices and transportation, and other commodity inputs affecting our cost of goods. So the net benefit of that is about $5 million. But you see that's what we flew through in our new outlook and increased EPS by that, plus a little bit of a benefit for the demand lifting the bottom of the revenue guide as well.

So in aggregate, we feel like the changes that have happened reflect the net positive to the business. And then time will tell what happens in the back half as it relates to tariff rates, and we'll see if there's further upside from here.

Excellent. That's super helpful. And then I just wanted to touch a little bit more on Drinkware then. So notably, you inflected here in the first quarter in the U.S. market, can you talk about the drivers here? Has inventory normalized for the large volume straw formats that have been under pressure? How is shelf space trending at retailers? And then what's the contribution been from some of the newer product innovation that you've launched? And then do you think growth is sustainable here? Or should we expect U.S. drinkware to be up for the remainder of the year?

Phil, thanks for the question. We're really pleased with Drinkware and really looking back over the last couple of years, I think one of the things that was underappreciated over the last couple of years is the resilience of our Drinkware business and the execution of the strategy of diversifying our Drinkware to being something much bigger and broader and more durable than I think the market that really had driven the last couple of years. And so it gets to the point where we talked over the last number of quarters about inventory correction, but good consumer demand signals, and when was sell-in going to catch up to sell through.

What we saw this quarter was the continued consumer demand and the sell-through, but the sell-in coming back, which is really fill in from a shelf perspective but also the execution of the innovation. So I think largely for our business, largely that large-format straw type thing, has really settled out. But I think the more interesting is the execution of the strategy we've had, which is to diversify that business, our stackable cups, our sports hydration jugs, all really showing -- our chug bottles really all showing the strength in demand for YETI in the variety of use cases that we can target consumers. And that, to me, is really the proof point of the execution of the strategy, but also the potential as we go forward.

Your next question comes from Joe Altobello from Raymond James.

I guess I'll follow up on Drinkware. It sounds like you guys have sort of turned the corner here. I'm curious how much of that is execution as you called out? And how much of that is an easing in the promotional environment in that category?

Hey, Joe, I would call it -- I don't think it's an easing of the promotional environment. I think you're going to continue to see the broader clean up, continue. I think there's a tail to that. As we've talked about all last year. I think it's a long tail to some of that cleanup. I think for us, it's execution, innovation, incredible wholesale partnerships, innovation resonating with new and existing consumers. And so it's really the combination of those things.

And when I think about you look at YETI and how YETI is presented at wholesale now, you really see YETI as an ecosystem. So it's the soft coolers, it's the bags, it's the hard coolers, it's the storage cases and storage boxes and it's the Drinkware. And that is the platform that we're building. So it's not a categorical concentration. And really, our wholesale partners have been incredible. And what I would say is, those who have leaned into merchandising, those have leaned into assortment. Those have found making sure YETI intersects when consumers are shopping, have found incredible success. And that's really our drive. And so we feel great about the portfolio and the role that Drinkware is playing in that. In the U.S. and internationally, still for the majority of the portfolio still all discovery mode.

Very helpful. And just shifting gears over to the innovation pipeline. I think last year, you guys have kind of delayed some product launches, at least in the U.S. until the supply chain situation kind of resolved itself. Should we expect to see more new products this year versus the last 2 or 3 years?

I think there's a couple of things there. You're going to continue to see a strong cadence of new products this year across the portfolio. You've already seen it on the soft coolers and bags side. You've seen it on the Drinkware side, we've indicated that in the storage and cases, building off the success of the GoBox 1, you're going to see more of that. In absolute numbers, as we go through the year, as we work with our partners, as we look at what's productive on the shelf and what the opportunities are.

We moved some of those launches around. But the things that we talked about last year, those will be filtered into the launches this year, some of which we've had put out a limited release, we'll put out more fully some of the ceramic items in Drinkware that we talked about. So there's more to come, but I would say you won't see a significant change in our innovation cadence this year, I would call it kind of consistent plus, but we think that's the right rhythm for absorption into the market and delivering the results to support our guide for the year.

Your next question comes from Molly Baum from Morgan Stanley.

I just actually had 2 follow-ups from some prior questions that were asked. The first one is a follow-up on Peter's question on international. So is corporate sales a bigger -- I know it was a smaller quarter overall for the year, but as corporate sales a bigger portion of international than it is domestic? Or is it not really big enough to kind of call out the difference there? And then I guess as we think about the acceleration through the remainder of the year. Does that hinge on the introduction to China and Korea? Or are you expecting improvement in maybe some of these existing international markets as well?

Molly, thanks for the questions and thanks for the clarifying. What I would say corporate sales internationally, our mix is -- they're largely consistent, but international is more sensitive to those orders. And so what we had internationally, a little bit different than the U.S. was there were some significant year-over-year comp type orders that were last year that we knew weren't going to repeat this year, or they have a timing that didn't happen in Q1 again, but these partnerships have continued forward and so we expect that those will play out later in the year. And so the sensitivity is greater internationally just based on the absolute scale of our international business.

To the China and Korea thing that -- we talked about that later this year. I would not expect that to be a material driver in 2026. What we wanted to call out was these are the building blocks of long-term growth opportunity that support the algorithm. And so as we establish -- further establish the U.K. and Europe, as we build up Japan as we get some of our Southeast Asian markets kind of turning to scale, we want more markets in the pipeline for expansion, and that's why we call out China and Korea.

That was really helpful. And then another just follow-up on wholesale. Can you help us kind of reconcile the comments about the cautious or the continued cautious ordering environment from your corporate partners with the strong double-digit wholesale growth in the quarter and double-digit sell-through. Are you seeing really strong new channel partners, can you talk about some of those and then maybe what you're hearing from your corporate partners in terms of when maybe the strong sell-through may then flow through to stronger sell-in as we go through the year?

Yes, I'll start with the end. I mean I think we're -- I think you're starting to see the sell-in as a result of the strong consumer demand. That's been a number of quarters that we've talked about. And so I think you're seeing that, and I would say our conversations with our wholesale partners where they've seen into our product pipeline for the next 12 to 18 months. They know what's coming. We're collaboratively planning shelf space and merchandising and assortment and launch, and we've been doing that. Obviously, that's been part of our playbook.

And I think it's part of the reason you've continued to hear us talk about strong consumer demand and the sell-through we expected to sell into catch up or come towards the sell-through and then you start to see that in our Q1 results. I think when we think about kind of reconciling strong consumer demand in corporate sales, I think there's just different -- they're different consumer -- or the different buyers, they're different buying occasions. They have different sensitivities. We've been very pleased with the durability of the consumer demand and the elevated consumer demand and through all of our channels, our direct to consumer, as Scott pointed out, and our wholesale.

And on the corporate sales side, some of that is -- it's the beginning of the year, new budget cycles for a lot of companies, they go into that. I think the year is something that we're now very active in how we drive that corporate sales business. But I think the biggest takeaway is the way the model works and the diversification of our channels to market, give us the ability to go kind of win overall as YETI even if each of the individual pieces and parts isn't kind of hitting its full stride. So we're excited about the rest of the year.

Your next question comes from Peter Keith from Piper Sandler.

This is Sarah Morin on for Peter Keith. Congratulations on the great quarter. First, as it relates to the higher input costs, are there any situations where we could see shortages for resin? And then just any color around the incremental pricing actions that you guys could take to help offset?

Yes. We've not seen any restrictions on the availability of materials at this point. Obviously, it's something that we're watching, but we've not seen that as a concern for the quarter for the balance of the year. So that's not something we've contemplated in our financial algorithm here.

I think, Sarah, what I would add on the pricing topic, just maybe as a reminder in how we think about pricing. We think about pricing very strategically on how does the pricing fit within our product portfolio. We use pricing when we're trying to create gaps for innovation to slide into our stack. And so we tend to think about pricing as it relates to our portfolio, our fit. And we tend to talk about pricing as a no-regret type action versus a reactive action. So we're always thoughtful about pricing. We're thoughtful about the pricing, about our innovation in our in-line pricing. But there's kind of a more strategic lens we look at it versus a reaction to kind of a moment in time.

Got it. Okay. Very helpful. And then just going back to international, and then the softness in Q1. Just what changed in Q1 as it relates to softer demand backdrop without that FX benefit? And then can you talk a little bit more about the changes expected for the remainder of the year to hit the full year guide?

So look, again, as we mentioned earlier, the international business, Q1 is absolutely the smallest quarter. So it just makes it more subject to volatility. And we saw this last year as well, where wholesale partner lumpiness purchasing or corporate sales onetime effects that Matt mentioned a moment ago, can weigh heavier in the quarter.

Underneath that, and I recognize it's difficult for you to see, underneath that, we still see strong demand signals from our customers and the affinity for the brand continues to expand across the globe. So we see the demand signals. We see the energy that we're garnering in the new markets that we're entering and feel confident in the expectation of delivering high teens to 20% range for the year. So we think we're in a good position. We think the international teams are operating effectively and are delivering against our goals.

Your next question comes from Anna Glaessgen from B. Riley.

Just one for me. I want to follow up on the wholesale commentary from a prior question. The 19% growth in the quarter, really strong, supported by double-digit POS growth. Was there any particular subchannel that was particularly strong? I think in a prior question -- answer you said something to the effect of retailers who are merchandising the whole ecosystem are essentially doing better. Is that to be taken as if there's one particular couple of particular retailers that were driving the strength. Anything more there would be super helpful.

Thanks for the question and the clarification. I would say wholesale broadly, obviously, to drive that kind of sell-in and the commentary we had around sell-through broadly strength. So it's not -- the point I was trying to make is what we have found, and this is just a truism is the retailers that merchandise assort broadly that get YETI in good position in their stores, they see the results, and they see the impact of that.

So it was less a comment about that was the one that drove Q1. It's -- those are the ones that are seeing further elevated success. And we have incredible partners and great relationships and conversations around that, and we bring our learnings, our in-house team brings those learnings to our wholesale partners, and they give us feedback. So it's an incredibly collaborative partnership and the results are trackable and obvious. And so it's really the -- when YETI gets presented right, it sells. And I think you saw that in Q1, and that's why we feel good about the year.

Your next question comes from Noah Zatzkin from KeyBanc Capital Markets.

I guess first on the new ad campaign, I know we're maybe kind of 10 days in, but just any color on early reception there, who you're hoping the campaign resonates with as well as maybe any color on the timing of ad buys and format of ads.

Yes. Noah, thanks for asking that. So the campaign, I'll start with the campaign really as we talked about when we talked about the OpEx shift from Q4 to Q2, it's really a Q2 focused campaign. So I think you'll see it build through Q2. And that was a significant shift of moving the expense of the campaign we did, the bad idea campaign during the holidays to Q2. And the reason we did that was what we liked about this campaign and what we have seen in the early reception is the broad resonance of it, and it's really a brand campaign, not a transactional kind of end of year type campaign.

And so what we -- if you kind of watch it and you pay attention to the out-of-home, we're going to be running of which we started some of the cutdown we're doing in -- on the various digital channels. It's really about resonating with a wide audience. And the consumer seeing themselves in YETI. And so that long form 60-second or 30-second is really a reflection of the complexion of what YETI is today and where YETI is going. And so we saw this campaign as a way to come out and talk about the breadth and depth of our audience. It's not about the product we have. It's about the people that are attracted to this brand and supporting the amazing things that they do. And so we've been very pleased with the reception. It's been fun to watch the consumer engagement and then wanting to identify what their 4-letter word is and what's meaningful to them. Because I think that's how great brands are built on connection and relationship and emotion supported by incredible product. And I think that's what YETI's done for 20 years.

Great, really helpful. And then maybe just any color on how you're thinking about the Bags business, how it kind of performed in the quarter and how you're thinking about it for the rest of the year?

Yes. So really, really pleased and excited about the Bags business, probably as excited about the possible and potential built on the momentum we're seeing in the reception. And there's you've got this moment of some legacy YETI bags, like the Camino having an incredible moment combined with the momentum we're seeing in our Daytrip soft coolers, which have some bag elements to it and then the Pinnacle type Skala backpacks.

And the road map is incredibly exciting on where we can go the reception and relevance to us playing along that spectrum and the YETI brand being welcome accepted and respected in a very short period of time along that spectrum of bags and packs and luggage. I think that opportunity in front of us, not just in 2026, we expect 2026 to be a very good bags year. But it's really what '27, '28, '29 hold for that business.

And there are no further questions at this time. I will turn the call back over to the CEO, Matt, for closing remarks.

Thanks, everyone, for joining us today. We look forward to catching up with you on our Q2 call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Good morning, ladies and gentlemen and welcome to the YETI Holdings Q4 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us to discuss YETI Holdings' Fourth Quarter Fiscal 2025 Results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we will open the call for your questions. Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K and Form 10-Q.

We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com. I would now like to turn the call over to Matt.

Thanks, Arvind, and good morning, everyone. I appreciate you joining today. The strong performance YETI delivered in Q4 is a direct result of growing brand strength and disciplined, consistent execution of our long-term strategy. Just as important, our Q4 results give us increasing conviction in the long-term trajectory of the brand, our ability to accelerate growth and profitability and to generate strong returns for our shareholders. There are 3 themes I want to emphasize this morning. First, our strong finish to 2025 sets the stage for meaningful global growth and profitability in 2026 and beyond. Second, our product innovation engine is operating with more speed, breadth and global capability than ever.

Third, our expanding global brand combined with a broader, higher-velocity product portfolio will be the driving force behind the next phase of YETI's growth. Beginning with our Q4 performance. We closed out 2025 with our strongest quarter of the year, delivering 5% net sales growth fueled by continued momentum across the YETI brand. Drinkware grew 6% and international delivered 25% growth, marking our best quarterly performance of the year for both. Gross margins exceeded expectations even in an intense tariff and promotional holiday environment, thanks to YETI's premium brand strength, innovation across the portfolio and operational execution.

We once again delivered strong full year free cash flow of $212 million, exceeding adjusted net income and underscoring the cash-generating strength of our operating model. We executed $125 million in share repurchases during Q4, bringing the full year total to approximately $300 million. Across the business, demand remains solid. Our portfolio is more diversified, more global and more durable with momentum across categories, channels and markets. This performance is a result of deliberate multiyear actions, grounding and broadening drinkware, expanding bags and soft coolers within coolers and equipment, investing in our innovation footprint, globalizing the brand and reinforcing supply chain diversification and resilience.

These decisions have positioned us well for sustained multiyear growth. Looking ahead, we entered 2026 with stronger global brand momentum and a broader product expansion opportunity than at any point in our history. While the consumer environment continues to be in debate, the fundamentals of our strategy remains sound, giving us conviction in our long-term opportunity. For 2026, we expect 6% to 8% net sales growth, shaped by strength in our innovation pipeline and our brand and expanding global reach. Over the long term, we continue to see the path toward high-single-digit to low-double-digit growth. We remain grounded in the same strategic growth priorities that have guided us through the past few years, driving product innovation, broadening our brand and addressable market, expanding our goal presence.

These pillars position us well as we enter 2026 with a higher capacity innovation engine, solid global demand signal in a more diversified growth model. Product innovation, anchored and durability performance and design remains the foundation of our long-term growth strategy. The portfolio is built on the strength of our 2 foundational categories, Drinkware and Coolers and equipment, and 13 unique and scalable product platforms. Importantly, we entered 2026 with one of our strongest pipelines in years, supported by innovation teams across Austin, Bosman, Denver, Thailand and Vietnam, enabling a robust global innovation cycle, allowing us to prototype faster, expand categories more efficiently and bring a global scale to product development.

Turning to Drinkware. We delivered 6% global growth in Q4, bolstered by innovation and expansion offsetting category cleanup discussed throughout 2025. While certain trend-driven styles in the category remained highly promotional, our broadening product platforms drove the business. And we entered 2026 with a refreshed assortment, stronger global traction and clear line of sight to continued growth. In 2025, we further broadened our definition of the Drinkware category. Today, we innovate across 4 platforms: bottles and jugs, cups, mugs and tumblers; tableware, coffee ware, barware and containers; and finally, cookware.

Let me share a few examples of recent expansion. We launched the silo 40-ounce and half gallon jugs both the job site and the sidelines, broadened our health and wellness assortment with the Yonder shaker bottles, added new high-capacity leakproof products with travel strawmugs, expanded color and personalization capabilities, including collegiate, NFL and Team Inspire designs and recently extended our premium ceramic line formats in Drinkware. We also advanced our lineup through early limited release carbon steel cookware and grew our offering in vacuum sealed food jars and bolts. We have additional innovation waves planned for 2026 and supporting the acceleration we expect during the year. These initiatives create broader uses for consumers, expanding our addressable market beyond traditional drinkware.

Demand in coolers and equipment remains exceptionally healthy with strong sell-through across trip soft cooler bags and Camino totes. Camino continued to broaden consumer reach, while day trip remained a standout performer in soft cooler bags. In hard coolers, we lapped a tough comparison with the very successful 2024 innovation and key product transition from a year ago. Overall, hard coolers continues to be a core product platform with particular consumer demand for high-performing more personal-sized coolers. We also saw strong interest in protective cases and the introduction of the GoBox One created a compelling entry price point into the platform with more products to come in 2026. While overall category sell-through was strong, sell-in was constrained by supply limitations, most notably in day trip soft cooler bag and Camino.

Importantly, we expect healthy growth in 2026 as new production capacity comes online in the first half of the year. We are combining improved supply with some of our most exciting C&E innovation, which continues at enough temple pace, including newly released day trip snack boxes plus additional innovation across the Dachi family coming later this year. Last week's launch of Scala, our first family of hike packs, deepening YETI's presence in bags and again showcasing the impact of high return, targeted inorganic innovation, fueled rapid YETI caliber expansion. The broadening in the Camino Tote family, innovation within the Rodi family of hard coolers in a personal everyday use format and continued expansion of the GoBox family with small to large format cases in storage.

On Scala, it marks YETI's entry into the trail focused women's and men's packs, combining the proven foundational DNA from our mystery ranch packs with a new design from our Denver Design Group, in a category consumers have been asking us to enter. Bill for durability, comfort and easy access, Scola's hikers and outdoor explorers, opening a meaningful expansion in the core outdoor environment. Across the board, innovation delivered throughout 2025, and alongside upcoming 20 to 26 launches, reinforces our product leadership and long-term category expansion opportunities.

Our second strategic priority is expanding brand reach. During the 2025 holiday season, YETI delivered a broad campaign across some of the biggest moments in sports and entertainment, generating more than 240 million high-impact impressions. Coming off the holiday momentum, our Spring 2026 campaign, targeting 400 million impressions, we'll continue to lean into the biggest and best cultural moments in sports, streaming and entertainment. In Q4, our team executed more than 60 global activations across pursuits such as sports, fitness, fishing, surf, equestrian, camping, motorsports and culinary. These events strengthen brand presence across global markets, helping drive discovery, engagement and long-term affinity.

Our sports expansion strategy continues to gain momentum, supported by expanded licensing agreements and deeper partnerships across major leagues in college sports. Globally, our brand footprint expanded meaningfully through high-impact activations in the U.K., deeper presence across European outdoor, mountain cultural and festival events and the debut of YETI's partnership with Land Rovers Defender highlighted during the 2026 to car Rally. This partnership allowed Geiger to support drivers, co-drivers and crews across the 2-week 5,000-kilometer desert race, reinforcing YETI's performance credibility in one of the world's harshest environments. Collectively, these brand-building efforts, powered by local creative, on-site customization and targeted retail partnerships continue to deepen global awareness and relevance. Underpinning our momentum is a healthy consumer foundation. Across our markets, we continue to see strong advocacy among YETI owners an extensive opportunity for multi-category ownership.

Our omnichannel strategy remains a competitive advantage, providing resilience across changing market conditions and ensuring a consistent premium brand experience. U.S. wholesale showed ongoing buying caution as inventory planning remains tight among many partners with our tracked channel inventory down significantly in 2025. Sell-through continued to outpace sell-in, supporting confidence in underlying demand for the brand and innovation and sustained momentum heading into 2026. We are also encouraged by the opportunities we see with new strategic distribution partners, which broaden the brand's reach and support our expanding product portfolio. Across DTC, disciplined execution delivered balanced performance. YETI-owned e-commerce remains a key channel and focus for us.

We saw strong engagement around innovation, limited additions and customization, offset by what we believe in the U.S. is elevated cross-channel shopping impacting traffic and increased promotional activity. AI-driven improvements in product discovery, search and UX are helping drive conversion on yeti.com and our conversational shopping assistant Ranger, continues to evolve as an important part of the consumer on-site journey. Amazon remains an effective reach engine, driven by improved in-stock levels, targeted ad spend and stronger product content, innovation like the Yonder Shaker bottle quickly climbed the must-buy list.

Corporate sales delivered another healthy quarter through reach, customization capabilities and a broadening product assortment. Our retail stores continue to reinforce the importance of physical immersion and product discovery. We saw healthy conversion across our store footprint, strong interest in innovation and great attachment within store customization. While the channel remains solidly profitable, driving traffic through continued enhancements in visual merchandising and localized assortments remains a key focus. Across all channels, our strategy is unchanged, maintain our premium positioning, protect channel integrity and use our diversified footprint to drive reach and profitability when and where the consumer is.

Our third strategic priority, expanding globally, continues to deliver strong results and represents one of YETI's most compelling long-term growth drivers. We believe our international addressable market exceeds the U.S. and we expect international growth to continue to drive strong results. Since our IPO, international has grown from just 2% of sales to 21% today, and we see meaningful runway for that mix to continue rising. Europe has great momentum across core markets with exceptional performance in the U.K. and growing traction in Germany and the broader DACH region. Our strategy is clear: scale the U.K. unlock dock extend across Europe. This is supported by a more powerful omnichannel model, improved wholesale fundamentals and elevated localized e-commerce experience and expanded Amazon presence.

And we're amplifying brand with a more robust marketing mix, bigger event presence in the U.K. and the DACH region, more locally relevant content, deeper community engagement, and partnerships that anchor YETI as a premier active and outdoor brand across Europe. Asia continues to accelerate. In Japan, we built the infrastructure for multiyear growth and remain on track for our e-commerce debut in 2026 with a doubled SKU lineup. Broader Asia expansion remains on track with strong progress toward other key markets, including Korea and China. Australia delivered its strongest quarter of the year driven by disciplined execution, strong color and product moments like cherry blossom and healthy sell-through. Canada closed the year with real momentum across wholesale, corporate sales and customization with what we believe is cautious but improved consumer sentiment entering 2026. Our global footprint continues to expand and the momentum is real. Our international performance shows we're reaching more markets, winning more consumers and building a long-term multi-market growth engine with significant runway.

Turning to supply chain. While tariffs remain a meaningful margin headwind in the first half, as Mike will discuss, our supply chain transformation continues to be a major success story. With our China diversification strategy yielding a massive shift in our exposure there, we are now focused on optimizing our global footprint as we navigate an evolving and complex tariff environment. While we've completed this phase of our multi-country diversification strategy with new factories live across multiple geographies, our attention now turns to optimization and the next expansionary moves to support our global business and cost efforts.

The suppliers to date are delivering the cost, quality and service we expect while collaborating to drive further efficiency gains and improvements. Our innovation centers and distribution hubs are operating with greater speed and productivity than ever based upon investments in automation and robotics. And we entered 2026 with a more resilient global and scalable supply chain model. Our capital allocation philosophy remains disciplined and balanced, anchored by a strong balance sheet and robust cash generation. We have tremendous flexibility to invest in innovation, brand building and global growth, while also returning capital to shareholders. As part of our growth strategy and disciplined approach to capital allocation, we're investing in foundational technology platforms, scalable digital and data infrastructure and transformative capabilities, including artificial intelligence.

These investments will strengthen the core of the business helping us connect more meaningfully with consumers and drive efficiency as we scale. This work will continue as we move forward. We are also advancing our work in AI across both consumer-facing and internal workflows. Externally, AI enhances product discovery, content optimization, recommendation engines and customer support, making the e-commerce experience more intuitive and personalized. Internally, we are applying AI to creative workflows, forecasting, marketing measurement, search optimization and operational automation. These initiatives improve precision, speed and efficiency and can also play a growing role in innovation, planning and strengthening brand relevance and margin structure well beyond 2026. As we've shared before, we look forward to hosting our Investor Day in Austin, and we'll be providing additional details on the event soon.

This day will allow us to provide a deeper dive into our long-term vision, growth algorithm, product pipeline and the significant opportunities ahead to drive profitable growth and margin expansion across global markets. Before turning the call over to Mike to walk through our financial results in more detail, I want to take a moment to discuss the leadership transition we announced earlier this morning. As we shared, Mike's last day in the CFO role at YETI will be February 22. We are grateful that Mike will continue to serve in an advisory capacity until the end of May to support a smooth and seamless transition.

It has been truly a privilege to work with Mike over the past decade, including the last 3 years as our CFO. He's played a meaningful role in the company's transformation, including helping lead YETI through our IPO in 2018. Mike has been a great partner to me and the strong results we reported today mark an appropriate send off from his successful tenure at YETI. At the same time, we're pleased to announce that Scott Bomar has been appointed to serve as our next CFO. Scott joins us from the Home Depot, where he most recently served as SVP of Finance, bringing decades of financial and operational leadership expertise across a large scale, complex and growing organization, across his time at the Home Depot and earlier as CFO of Deluxe.

He has consistently driven cost discipline, operational efficiency and margin improvement while focusing on long-term strategic priorities. He's also led data-driven teams responsible for building predictive insights and analytics. These experiences give us a lot of confidence as we continue to focus on scale and profitable growth at YETI. Scott will officially join us on February 23. We're excited to welcome him and look forward to his leadership as he builds on a strong foundation Mike helped to establish.

To wrap up, the product engine is cranking, the global momentum of our brand is real and the growth opportunities in the U.S. and in the global markets are obvious. We have an exceptionally strong team operating with focus and purpose and a diversified commercial model that has proven powerful and scalable. Passion for YETI across consumers, partners and communities is as strong as ever. With disciplined execution on our strategic priorities, we're confident in the ability to continue unlocking the global potential of YETI. Thank you to our team, our partners and our customers for your support and passion, leading to a strong finish to 2025 and a great setup for 2026 and beyond. With that, I'll now turn the call over to Mike.

Thanks for the kind words, Matt, and good morning, everyone. It has been an honor to serve as YETI's CFO. And over the past decade, I've had the privilege to work alongside an exceptional team through some of the most defining moments in the company's journey. As Matt mentioned, I will remain with the company in an advisory capacity through May 31, and will work closely with Matt and Scott to ensure a successful transition. I have tremendous confidence in YETI's leadership, strategy and long-term opportunity, and I'm excited to continue supporting the company and to follow its continued success. With that, I'll turn to our financial results for the fourth quarter and provide our outlook for 2026.

We look forward to taking your questions after my prepared remarks. As always, the results we will discuss today are on a non-GAAP basis unless otherwise noted. Let's begin with our top line performance. In the fourth quarter, we delivered adjusted net sales of $583.7 million, representing 5% year-over-year growth and our strongest quarterly performance of the year. Our growth in Q4 was well balanced across categories and channels and with exceptional growth in our international business. Turning to our performance by category. In Drinkware, sales grew 6% to $380 million. As we have noted, 2025 was a challenging year for Drinkware, reflecting U.S. market dynamics and the impact of our supply chain transformation. That said, we consistently communicated our expectations for improvement in Q4, and we were pleased to see that come through our results. Growth was driven by innovation, strong international demand and continued positive consumer response to our broad assortment in this category.

In the U.S., Drinkware sales were flat year-over-year despite a promotional market and continued cautious wholesale volume. Coolers & Equipment sales grew 2% to $192 million, a solid finish given DayTrip and Camino supply constraints and as we lapped exceptionally strong C&E growth of 17% in Q4 of last year. Soft coolers, bags and cargo continued to perform very well, reinforcing the multiyear growth opportunity in these categories. The combined strength of Drinkware and C&E further demonstrates the impact of our innovation engine, the breadth of our product portfolio and the significant global market opportunity in front of us.

Looking at our performance by channel. Direct-to-consumer sales grew 5% to $394 million. Growth was broad-based across all D2C channels, including Amazon Marketplace, corporate sales, our YETI retail stores and owned e-commerce. Wholesale sales increased 6% to $189 million, led by exceptional international performance across both Drinkware and Coolers & Equipment. In the U.S. wholesale channel sell-through continued to outpace our sales into the channel, once again driving a decline in inventory levels year-over-year. This cautious wholesale buying is a continuation of the trend we have seen throughout the year. Underlying consumer demand for our products remain strong and is an important indicator of the health of our brand, setting us up well for 2026.

Moving to our international business. sales outside the U.S. grew 25% to $136 million, our strongest quarterly performance of the year. This represents 23% of Q4 sales as compared to 20% of sales in the prior year period. Europe continued to deliver exceptional growth driven by rising brand awareness, deepening wholesale relationships and increased engagement in key markets. Australia also contributed its strongest performance of the year with balanced growth across categories and channels. In Japan, momentum continues to build, and we see significant growth opportunities ahead after laying a strong foundation in 2025.

Now moving down the P&L. Adjusted gross profit was $341 million or 58.4% of sales, down 180 basis points versus last year. This includes a 310 basis point gross headwind from higher tariff costs, partially offset by lower product costs and selective price increases implemented earlier in the year. Adjusted SG&A was $246 million, up 10% year-over-year. As a percentage of sales, adjusted SG&A grew 190 basis points to 42.2%, reflecting continued growth investments in marketing, technology, facilities and our global teams, partially offset by distribution and fulfillment leverage on higher sales. Adjusted operating income declined 14% to $94.7 million or 16.2% of adjusted sales, reflecting an approximately 250 basis point net impact from higher tariff costs. Adjusted net income decreased 15% to $71.8 million or 12.3% of sales and adjusted EPS declined to $0.92 from $1 inclusive of an unfavorable net tariff impact of approximately $0.15.

Turning to our balance sheet. We ended the fourth quarter with $188 million in cash as compared to $359 million in the prior year quarter. During the fourth quarter, we repurchased 3.1 million shares of YETI's common stock in the open market for $125 million, bringing the year-to-date total to 8.2 million shares for $298 million. As a reminder, over the past 2 years, we have returned approximately $500 million to shareholders in the form of buybacks, repurchasing over 13 million shares, which represents a 14% reduction in our shares outstanding over the period. Total debt, excluding finance leases and unamortized deferred financing fees was $74 million compared to $78 million at the end of last year's fourth quarter.

Our Q4 results clearly reflect the health of our brand and the strategic choices we have made to broaden our global reach, accelerate our product innovation engine and strengthen our operational foundation. Now turning to our outlook for fiscal 2026. We expect full year sales to grow between 6% and 8% versus fiscal 2025 as we continue to build on the momentum we saw in Q4. From a quarterly phasing perspective, we expect total sales growth rates to be relatively consistent throughout the year. By category, we anticipate high-single-digit to low-double-digit growth in coolers and equipment, supported by broad-based growth across all C&E categories and with specific strength in bags, soft coolers and cargo. From a phasing perspective, we expect coolers and equipment growth to be slightly stronger in the first half of the year compared to the second half.

We expect drinkware to grow at a mid-single-digit pace for the year, fueled by robust international demand, ongoing innovation and a continued broadening of our portfolio. We expect growth each quarter this year with slightly stronger growth in the second half of the year compared to the first half. From a channel perspective, we expect wholesale to grow at a slightly faster rate than D2C in fiscal 2026. Geographically, we expect international growth in the high teens to 20% range for the full year. In terms of phasing, we expect international growth to be relatively consistent throughout the year, and we anticipate U.S. growth to be in the low mid-single-digit range for the full year with consistent growth across quarters.

We expect 2026 gross margins of between 56% and 57%. At the midpoint of the range, this is down approximately 90 basis points year-over-year reflecting the annualization of a full year of tariffs, partially offset by continued supply chain cost reductions and selective price increases. Embedded in this guide is approximately 200 basis points of incremental impact from higher tariff costs in 2026, which will primarily impact us in the first half of the year. This headwind is on top of the 230 basis point gross tariff impact in 2025, which was concentrated in the back half of last year. Note, we are assuming that the tariffs that are in place today remain in place throughout 2026.

Given these dynamics from a phasing standpoint, we expect year-over-year gross margins to be down approximately 300 basis points in the first half of the year with the year-over-year decline greater in Q1. As we lap the full impact of tariffs in the second half of 2026, we expect second half gross margins to expand year-over-year as compared to 2025. In terms of OpEx, we expect full year growth of between 3% and 7% versus 2025, reflecting operating leverage and cost discipline. From a phasing perspective, we expect higher OpEx growth in the first half of the year versus the back half of the year. More specifically, we expect approximately 200 basis points of deleverage in the first half.

There are 2 discrete items that are driving this dynamic. First, our brand marketing spend will shift earlier in the year with the next phase of our campaign launching in the first half of 2026 versus a second half launch in 2025. Second, incentive compensation will return to a more consistent accrual pattern in 2026. In 2025, our incentive compensation accruals were reduced midyear following tariff announcements. We expect 2026 adjusted operating income margin to be approximately 14.4%, consistent with 2025, leading to adjusted operating income growth of 6% to 8% for the full year. Driven by the timing dynamics in gross margin and operating expenses that I just mentioned, which, again, are the unfavorable year-over-year impact of tariffs in the first half of the year and the timing shift of brand marketing and incentive compensation from the second half into the first half of the year, we expect first half operating margins to decline approximately 500 basis points, but we expect this to be fully offset by an approximately 400 basis points increase in the second half resulting in flat operating margins for the year.

Before we move down the rest of the P&L, I wanted to take a minute to comment on our gross margins and operating expenses in 2025 and 2026 and then provide some thoughts on the opportunities in these line items beyond 2026. In 2026, tariffs will add roughly $80 million to our cost of goods relative to 2024. That represents approximately 430 basis points of impact on our gross margins. Yet the midpoint of our 2026 gross margin guide, 56.5%, would imply only a 210 basis point decline over that same period. The difference represents our efforts to drive cost improvements and take pricing actions, which are helping to offset the impact of tariffs. As we move into the second half of 2026 and fully lapped tariffs, we expect those actions to drive year-over-year gross margin improvement with continued opportunity beyond 2026.

As for operating expenses, we have made targeted investments over the past several years to support product innovation, international expansion and global brand growth. As these initiatives scale in 2026, we expect to begin realizing operating expense leverage, and we expect that to continue beyond 2026 as well. In terms of the remaining P&L items in our guide, we expect an effective tax rate this year of approximately 24%. We expect full year 2026 diluted shares outstanding of approximately 76.6 million compared to 81.6 million in 2025. This reflects the full year impact of $298 million in share repurchases during 2025 as well as an additional $100 million in share repurchases planned for 2026.

We expect adjusted earnings per diluted share of between $2.77 and $2.83 in 2026, reflecting growth of 12% to 14%. Our 2026 guidance includes an incremental $0.35 net unfavorable impact from higher tariff costs versus 2025. Capital expenditures are expected to be between $60 million and $70 million for the full year. Our capital spending remains focused on advancing our technology, launching innovative products and strengthening our supply chain. We expect free cash flow of between $200 million and $225 million in 2026, which will be our fourth consecutive year of over $200 million in free cash flow. Note that our planned share repurchases and 2026 of $100 million represent approximately 50% of our free cash flow this year. We are proud of the strong finish to 2025 and the momentum we are carrying into the year ahead. Our performance reflects not only the strength of the brand, but the operational discipline and strategic execution of our teams around the world. With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions] Your first question comes from Peter Benedick with Baird.

This is [indiscernible] on for Peter. First one on pricing. Mike, you mentioned taking some select increases this year. You guys mentioned the select increases from Q2 of last year. Can you share any more details on that front? And then on tariffs, are you thinking about potential relief in the event that Supreme Court overturns any recent policy on those?

Thanks for the question. So I'll take the first part of it. On the pricing side, I think the simplest way to think about it is it's going to be similar to what we did last year in terms of timing in terms of scope, in terms of impact. So last year, pricing had roughly a 40 basis point impact on our gross margin. And I would expect a similar level this year. I think -- and we announced the price moves last year in Q1, and the timing will be similar this year as well.

And when we turn to tariffs for avoidance of any confusion, any relief from tariffs is not contemplated right now on our guide. I think obviously, there's a lot of unknowns both on if the timing and the size of any potential relief. I think the way we would approach it is, as we have always done, be really flexible and the opportunity to flow through and -- but also continue to invest in growth-focused initiatives, in particular, international growth, product expansion, brand expansion. And I think all those things are consistent with the way we run the business. And obviously, we're monitoring it closely and we'll know when we know. But up until that point, we're going to continue to drive the cost efficiency, we're going to drive the top line growth are going to drive the margin expansion opportunity over the short, mid and long term.

Your next question comes from Randy Konik with Jefferies.

I guess, Matt, first for you. Can you just kind of elaborate on just some of the foundational work you've been kind of working on for the international business from a mostly from a distribution standpoint, supply chain standpoint. And then you talked about some of the brand building efforts going on from a global perspective. Maybe give us some vantage point on where do you think we are from a brand awareness perspective and the different markets you're focused on and all that, that would be very helpful.

Thanks, Randy. So starting with the foundational work, I think we started our international expansion back in really 2017. And I mentioned on the call that in 2018, it was 2% of our sales. This year, we just 25%. We just wrapped it 21%. When it was 2%, people would ask how big could it be? Now that we're at 21% and showing the momentum that we have behind that business, and we have established teams in -- across Europe. We have established teams in Japan and expanding throughout Asia and an incredible team in Canada and an incredible team in Australia. I feel like we really have a lot of the pieces and foundation to drive the kind of growth that we saw in 2025 and that we saw in Q4 in particular.

So I think a lot of the elements are there. It's a really big focus for us, which is making sure we have the right structure, the right distribution. So a big focus of 2026 is building out our wholesale footprint, expanding our e-commerce capabilities in the regions in which we operate today, building out the kind of powerful corporate sales and partnerships piece. I mentioned Land Rover Defender is a great example of our team in the U.K. developing what ultimately was a global relationship. So I think those pieces are really falling into place in 2026 is a year of accelerating that. In addition, looking at new markets, and I called out on the call, both China and Korea as markets of interest for us in places where we're spending some energy and effort to get those established in addition to some of the markets that I mentioned on the Q3 call.

So feel really good about -- incredibly good about the team we have, I feel great about the strategy and feel even more bullish on the opportunity. We think about the events and activations, we're running much of the playbook that was successful in the U.S., and we've seen translate to our most established international markets in Canada and Australia. We're seeing it play really well in the U.K. And as recently as the last couple of weeks, ran an incredible event in Japan, where we supported a Mountain Sports snow event and I think those things are what give us the conviction and confidence of the international opportunity in that it's -- as I said on the call, we think it's a larger TAM for our product portfolio outside of the U.S. than in the U.S. and that the playbook is working.

Super helpful. And then I guess my last question would be, when you look at the international revenue guidance for '26 and the Drinkware guidance for '26, does that reflect a level of like conservatism or status quo? Because when you look at the exit rate of international in the fourth quarter, up 25%, you're adding, obviously, it sounds like new distribution, seems like international will be firmly -- will be firm in this year. And then when I think about drinkware, you have new products launching. I know that the wholesale channel has been conservative, but also give us maybe some perspective of how long those inventories are in wholesale such that the domestic market at least could potentially get a little bit better as we go through the year? Just want to get some perspective on what the guidance includes from a drinkware perspective and an international standpoint in particular? .

Randy, this is Mike. Thanks for the question. So I'll take each one in turn. In terms of the guide, so we said international first, high teens to 20% that's coming off a 25% growth in Q4. I mean, obviously, when we put out a guide, we want to feel good about that. But at the same time, when we look at the opportunities we have in front of us that we've talked about with you all consistently Europe, Asia. We're super excited about what's happening there. As for Drinkware, we said mid-single digit. That's coming off roughly 6% in Q4. I mean, again, I'd say the same thing holds. I mean, we're excited about innovation that we released, we're excited about the innovation we have coming, and we certainly think there's opportunity there when we look at just the global market as well as the U.S. market. As for inventory levels, we've now seen, I think it's several quarters in a row where inventory has been coming down year-over-year Three quarters in a row where sell-through has been outpaced -- sell-through growth has been outpacing sell-in growth.

We feel like we've got a prudent guide in terms of when we look at what the opportunity is, but our inventory levels are down meaningfully year-over-year. we think there's just caution overall for within wholesale dealers and specifically to the drink wear category. So -- but like I said, when we put a guide out, we want to feel good about it.

Your next question comes from Brooke Roach with Goldman Sachs.

Matt, Mike, I was hoping you could contextualize the sequential improvement that you're expecting in your core U.S. market to get to that low single to mid-single-digit range for the full year. How much of that improvement is driven by U.S. Drinkware? How much of that is driven by international -- and are there any new categories or new brand building investments that you're making that give you additional context achieving and exceeding that expectation. .

Yes. Brook, this is Mike. Thanks for the question. So correct. So when we gave the guide for the year, we said the U.S. would be in the low to mid-single-digit range coming off a year where we were down slightly, but we did see improvement in Q4. I think the biggest story in the U.S. has been the drink wear category. And I think we saw a stabilization there in -- and we think there are opportunities to continue to drive growth across all of our categories. The other thing that I think impacted us in the U.S. in Q4 was C&E had a had a relatively tough comp. I mean, globally, it was 17% growth. We had some new innovation we were lapping with a product transition we were lapping. And so I think that, again, similar to last question, when we put a guide out, we want to feel good about it. But we certainly believe that we have opportunity in the U.S. to continue to drive growth.

And then just a follow-up for you, Mike. Can you help contextualize the inflection that you expect to get in operating expense leverage as you move into the back half of this year and on a medium-term basis? One of the most important cost control and fixed cost expense opportunities that we should be looking out for?

Yes. So I think the story around OpEx this year is 2 things. One, we have made investments over the last -- in 2025 that we believe we will start to get leverage on for the year. There are some timing dynamics, however, with related to 2 line items that we discussed in my prepared remarks. One is the timing of our brand campaign. It was in Q4 of 2025. It will be in the first half of 2026 and -- and the second is around our incentive compensation accruals. And given what happened last year with tariffs when they were announced, there were some differences in timing of when those accruals took place. This year, we're planning for a more normal and consistent pattern.

So you normalize for those 2 things and that explains the first half, second half dynamic. But I think for the year, which is, in our view, the most important, but there's always going to be things that move dollars around from a quarter-to-quarter basis. But for the year, the investments we've made in facilities in 2025, the number of offices and facilities and locations we've talked about with you all, giving leverage on those, getting leverage on some of the technology investments that we have made, we feel good about our SG&A and starting to get leverage on some of those going forward.

Next question comes from Phillip Blee with William Blair.

Mike, it's been a pleasure, best of luck. You guys guided sales growth this year at 6% to 8%, but there are some easier comparisons with, I believe, 300 basis point headwind that you guys called out related to supply chain constraints and delays in new product launches that impacted 2025. And ramping up international and some new markets in Asia. So are there some other catalysts that maybe aren't as impactful this year that could help us bridge to your longer-term targets in the high-single to low-double-digit range?

Phillip, this is Matt. And thanks for the comment on Mike, I would echo -- he's been a great partner for 10 years, and we're really excited to get Scott on board for this next phase of YETI growth. Specifically, there's a lot of things that move around in that 6% to 8%. We talked about some wholesale caution and buying caution that impacted Q4 even with the strong results we delivered. I think the U.S. market is one we're watching closely. We're seeing a lot of really interesting green shoots both across the product portfolio and the expansion, but also, as Mike mentioned, the stabilization in Drinkware. To a question earlier, the international growth, we continue to see opportunity to accelerate international growth. We see new market opportunities, but those take some time to build into and to invest into. And so when you put all that together, it sums up and makes me feel great about the 6% to 8% guide coming out of the gate and what we were comparing against in 2025, both in the products that were launched in 2025, the ones that were delayed.

So I think as we go into this year and we see where the where the consumer is, how our domestic versus international markets develop, how our innovation comes to market. I think we'll obviously be talking about this every quarter throughout the year. But we feel like starting the year with a strong guide on the top line, feeling great with the momentum behind the brand feeling really strong about the pipeline we have in the product. And as you've seen most recently, the continued expansion, expansion in drinkware, expansion in day trip soft coolers, the most recent launch into our hike packs and our scalapack. So a lot of good things that we think will both in the short, mid- and long term pay off really well for YETI.

Okay. Great. That's really helpful. And then just quickly, as you continue to expand into new products and categories, how do you think about the opportunity to enter new points of distribution, like TikTok shop, potentially new national retailers or new segment of local independent retailers. And then is that the bigger opportunity? Or is it more about expanding your shelf space with existing wholesale partners?

Thanks, Phillip. Great question. I would say it's a combination of both. We have incredible wholesale partnerships today from some of the most passionate specialty all the way up to what I believe are some of the best retailers in the country in the U.S. and, frankly, operators in the world. So we always believe there's opportunity to continue to bring products that are relevant to those channels to market, merchandising as sort them well for the consumers that shop in those places. And so as we launch new products, we think about what fits in the channels we have today. There are also things in the product portfolio as we expand that open up really natural new points of distribution that makes sense and are complementary to the rest of the channels that we're in today. And those could be digital channels and those could be brick-and-mortar.

And that's really everything from as we've expanded more of our sport oriented offering as we expand our outdoor offering. There's lots of outdoor specialty and sports specialty that I think are really interesting places for YETI to expand and grow. I also think that our existing accounts have opportunity to continue to sort and manage the portfolio we have. And I think there's some emerging and some established digital channels that as shopping moves in a genic shopping becomes a bigger and bigger presence, I think there's an opportunity for YETI to play there. So we love the core of what we have. We'll always continue to stoke and focus on growing that, but I think there are complementary plays for us.

Next question comes from Peter Keith with Piper Sandler. .

This is Sara on for Peter. We just wanted to dig a little bit more into your advertising efforts. How vacant that was launched in November. So just wondering key learnings from that and how that's shaping your advertising focuses going forward. And then if there's any differences to call an international versus U.S. strategy on the advertising front?

Thanks, Sara. I appreciate the question. We were incredibly pleased, as we said in my remarks about Q4 November campaign that we internally called bad idea I think that what it showed us and what we believed going in is that live events, in particular, live sports, is 1 of the last great places where you have highly concentrated, high-quality viewership and focus and where they're sort of galvanizing moments. And I think that's only growing, and you're seeing with the passion around sports, the investment that's going behind sports. And so the opportunity to bring a YETI advertising broad-based campaign into those moments and intercept the consumer with something that is very of YETI and feels very YETI, we think was fantastic. And we saw that both in the high-impact impressions we got, but also the follow-up feedback we got on the campaign impact, which is what gives us the confidence as we go into 2026 and building upon that campaign. And we saw an opportunity to shift it from Q4 as Mike said, to the first half of this year, which is part of the OpEx SG&A conversation we just had.

But we see those moments as we get into the moms, dads and grads season and similarly, we're going to target sports, cultural events, activities where people are paying attention, and we can go hit really high impact -- high-impact impressions. And it keeps YETI top of mind. And I think that's an important thing. We have believe we have an incredibly deep rooted ground connected game. And this gives us more of a halo around the brand as we expand the product portfolio as we drive our channels to market as we expand globally. So that's the sort of evolution of marketing, but it's connecting to what we've always done successfully. And I think internationally, there will be elements of that, that will spill over and manage internationally also.

Okay. Great. And then just 1 on BTC. Any more insight on to what drove the lower conversion rate in Q3 and then the improvement in Q4 and looking to 2026, is this something that we should expect to continue and help drive stronger conversion?

Yes, a few things there. And we commented on this. I think that the movements we've seen around conversion really what we believe and what we've seen across our analytics and the privilege of having the diverse channels to market that we have is we get to see a good insight into consumer behavior. And what we saw is an increase what we believe is an increase in cross-channel shopping so people are checking, which is really driven by, I think, price discovery and making sure that people are getting the best deal not necessarily a deal, but I think in a promotional environment in promotional categories, you see consumers looking around and checking multiple places. And so I think for us, the benefit is you move between our incredible wholesale partners, our Amazon marketplace, yeti.com, there's a lot of opportunity for us to intersect and capture and convert a consumer. So I think that conversion is really a dynamic that we saw start to play as we saw consumers being more promotional oriented and more cross-channel shopping. .

Your next question comes from Joe Altobello with Raymond James. .

I guess first question, I wanted to ask about tariffs. You mentioned it was $0.35 headwind last year, expected to be another $0.35 headwind this year. which was a little surprising, at least to me because I know you guys have done a lot of work on the supply chain side to try to get that number down. And I realize there's some annualization of last year, but I still would have thought it would have been a little bit lower given you moved a lot of drinkware out of China that's coming over to the U.S. So maybe help us understand why that number isn't getting a little bit better.

Joe, it's Mike. Thanks for the question. So I mean it really comes down to the annualization. I mean we spent the first 4 months of the year at little to no tariff rates in April, things increased. China went to first very high and then down to around 30%. The rest of the world was roughly 10%. We had about 4 months of that and then we had the final 4 months at China at roughly 30% and the rest of the world at roughly 20%. And so now when we look forward, we'll have -- we are planning -- as Matt said, we're not planning for any change in tariff rate that's baked into our guide. But essentially, it's 20% in China and 20% in the rest of world, roughly. There's some variation there by country, but that's roughly what it is. So it really just comes down to the annualization of a full month of the 20% globally versus what we saw in 2025.

Okay. That's helpful. And just a follow-up on the international side. I know you mentioned the addressable market is bigger than the U.S. Obviously, you've got a head start in the U.S., but is there anything structural about these markets, whether it's Japan or China, Korea, et cetera, that would make your penetration more difficult, whether it's competitive or cultural, fewer use cases, et cetera.

Yes, Joe, I would say when we look at TAMs, obviously, we're basing that on the analysis of products in those markets and the opportunity for us to wrap those. So we know -- the point being, we know there's established markets. So when we think about what's the best route to access. And so I would say, I don't think there's anything structural I think it's more what do you prioritize, how do you move into a market, your approach to the market. So some markets we've gone direct in those markets, and we've established teams. Japan is a good example of that. .

There are other markets where a 2-step distribution makes more sense because of the nature of the market, either the size opportunity, the complexity of access or just the priority. And so what I think you'll see us do, and we've talked about this on past calls, we're being very thoughtful about where do we want to be direct, where do we want to leverage partners in almost a river guide type style to navigate some of those complexities of the markets. But I don't see anything structural that would say there are markets that are off limits to us today.

Your next question comes from Brian McNamara with Canaccord Genuity.

Mike, I wish you the best here. I just wanted to get a few clarifying points on your guidance. I think you called out strength in bags. I believe on [indiscernible] were quite a couple of years ago that were expected to contribute about $35 million in sales. How big are bags today? Second is U.S. drink were expected to grow in your mid-single-digit drinkware guide? And then third, you mentioned sell-in being better than sell-through. I'm sorry, selling being better throughout 2025, do you believe we are finished with the destocking?

Brian, thank you for the words. I caught the first and third question. I may need you to repeat the second question, but bags, so we haven't broken it out specifically. But the one thing I wanted to clarify is that our bags business is broader than Mystery Ranch. I mean we're now -- we've now had 2 years of -- we bought the -- we purchased Mystery Ranch in early 2024. We had a bags business before that. We've leveraged a lot of the things that we acquired with Mystery Ranch to help build out our bags portfolio on the YETI side, and you're seeing the results of that. So well, we haven't broken it out. We have talked about it consistently being a driver of growth in 2025 and 2026. We think it's a significant global market opportunity for us and we're -- it's certainly an element of the C&E guide that -- or the guide that we provided for C&E in 2026.

The third question around sell-in versus sell-through. Like I said, we've had a couple of quarters where sell-through has exceeded sell-in. We do think while we're not planning for a significant inflection, we do believe that there will be more aligned in 2026. Our inventory levels are well below where they were last year as we've said. And so we'll continue to work with our partners on making sure we have the right inventory as our product portfolio grows and becomes more broader, we're super excited about the opportunities, both with partners where we've been for a long time as well as some of the newer ones that we've announced recently. So -- and Brian, apologies, if you could repeat the second part of your question, I can address that as well. .

We can move to the next question, operator.

Your next question comes from Noah Zatzkin with KeyBanc Capital.

I guess maybe just one on tariffs. As it relates to the, call it, $0.35 last year in the incremental this year. Any way to quantify how much of that is related to APA versus other tariffs? .

Yes. No. So what I would say is the vast majority of that is related to the EPA tariffs, which, as you all know, is currently what's under review at the U.S. Supreme Court. But it is the -- it is the majority of the cost that we've talked about.

And then maybe just one more on the kind of competitive environment. Any changes that you've seen play out over the last year to call out as you look into '26 maybe versus '25? And then any opportunity from a shelf space perspective related to that. And I guess, related to all of that, any thoughts around the promotional environment and maybe industry inventory of '26 relative to last year would be helpful.

Yes. No, I'll sort of rapid fire those things. I would say as it relates to shelf, we continue to obviously expand our product portfolio and continue to have conversations, really productive conversations with our wholesale partners on how we're going to merchandise the new things that YETI's seeing, and it's evidenced by if you go out today and the accounts where we have launched this into the additional space we received for our scala backpack, where that product makes sense and then the recent launches this year around expansion around sports jugs and colorways.

So we continue to have really good productive conversations but our wholesale partners don't have great relationships as it relates to our innovation and how we fit on the shelf. I think you and we talked about this all last year, I think we've seen a shift in the Drinkware category and the allocation of total space to that category. And I think all those things create opportunities for the innovation that we continue to push. As far as it's early in the year to call the promotional environment, but I think it's safe to assume that you're going to see some tail on that as wholesalers as brands continue to rotate out or down of their Drinkware inventory. And I think all that, for us, because of the strategy of broadening our Drinkware category and expanding the product innovation there is we continue to operate around that space and create product that we think has got a long-standing shelf-stable opportunity.

And changes in the competitive environment, I wouldn't call out anything specific other than the promotional environment we talked about, the transition that's happening in that concentrated part of the Drinkware portfolio. But in the rest of the portfolio, I feel like the rest of our Drinkware portfolio and the rest of our C&E portfolio, we continue to drive opportunity, which is what's driving and pacing the growth of the business.

I will now turn the call over to Matt for closing remarks.

Thanks, everyone, for joining us today. I want to conclude with thanking Mike for his partnership and welcoming Scott, and we look forward to seeing you all on our Q1 call. .

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

All right. Next up, we are excited to have a unique consumer brand that I'm sure needs no introduction for its innovative outdoor products. To help us understand how the company continues to evolve. We're excited to have CEO, Matt Reintjes as well as CFO, Mike McMullen, thanks for joining us today.

I'm going to start off on product innovation, and you've described the strategy as being anchored on this. So can you just step back and frame how your product innovation has evolved and also what you see as the next key growth drivers as we look out, not over next year, but maybe over the next 3 to 5 years?

Yes. No, and thanks for having us. Excited to be here. I would say products where we began. I mean it is -- the brand has really emerged because of the product, and it's been a focus from the very beginning, yet he started in 2006, so going on 20 years and really focused on driving durability, performance and design and product. And so when we think about that filter and what we apply it to, we just fell into 20 years ago into this hard cooler business.

But where we are today and you think about a business that's diversified across a wide range of Drinkware, the movement into bags and the expansion we've had in soft cooler bags, our legacy hard coolers and continue to drive innovation there. and then something else we're excited about is this growth in protective storage organization cases that provide all those things have this element of durability performance and designing them and then the brand has really been built built around that promise and that ethos.

And so maybe a follow-up there, which -- I guess, which of those categories are you seeing as maybe the biggest drivers from here? Is it truly more balanced? Or are there any that have higher returns than others as you look across the portfolio?

Yes. I mean I think, obviously, we've established a large opportunity, but also a large business in our Drinkware. And we continue to see innovation there and the expansion and the definition under that. And I think if you think about. We launched our first Drinkware in 2014 over the last 10-plus years of Drinkware, the diversification of use cases, giving consumers more reasons to engage and purchase the kind of redefinition away from just a cup or a tumbler into this broad-based food, beverage, a broader Drinkware.

And you're seeing that in our innovation strategy from individual use to more group offerings, whether that's in the culinary cooking world, whether that's in sideline sports, active jobs, larger format Drinkware. And so we think winning Drinkware has a lot of trends that we really like for the long term. The focus around hydration, the health and wellness benefits, the normalization of having a bottle or a cup with you constantly. We think all those are really interesting dynamics. But we're really excited about bags, and we're really excited about what bags can be from a global scale.

When we think about bags across three really growth -- significant growth vectors. Everyday bags travel broadly and then what we call pursuit bags, things that are more specific to active outdoor activity-based pursuits. And we think all those create growth platforms for us to continue to drive underneath this brand that we've built.

I want to dig into the Drinkware side a little bit more. But before we do, as you think about some of those categories, are there investments that you need to make as you expand into those? Or is it for the most part, you kind of have the platform set and it's just incremental?

Yes. I think it's -- we're really excited about the platforms that we have set in the capabilities that we have. The team the talent, the capacity to grow. And so if you were to look at our investor deck, you'll see what our most recent investor deck, after our Q3 call, you'll see we broke are two segments down into the growth in the product platforms below that. And that was really a nod to all of the different areas of innovation that we've been driving, but also the growth potential going forward. And so when we think about -- we set the platforms up then we have capability and capacity.

We recently talked about the expansion of our talent in Thailand or talent in this new innovation officer going to be building in Vietnam, gives us global capabilities, both from an innovation efficiency and almost a 24/7 clock but also close into contract manufacturing partners around the globe, connected back to the 3 product groups that we've established in Austin with kind of discrete teams that are focused on Drinkware in this food and beverage expansion in gear and equipment, which is our hard coolers and our cargo protective case storage boxes some of the pet products that you've seen even most recently in our Gear Garage through the Black Friday Cyber -- Cyber Monday event. And then our more soft good type products in our bags and soft cooler bags. And so, we have teams that wake up every day and care about those three groups and then we have capabilities that we built out around the globe to take advantage of the opportunity.

So to follow up on Drinkware. I think last quarter, you talked about this inflection going into the fourth quarter. How much of that is some of the new verticals that you're growing into food and beverage, things like that versus just the core is getting better.

I would say, I think what it really is, is the strategy is playing out. And the strategy we've talked about over the last few years is the continued diversification of our Drinkware portfolio. The increasing number of use cases for why a consumer domestically and globally would want to think about YETI as their Drinkware, food storage, food transportation, food prep and ultimately cooking solution.

And then I think the third one is obviously, over the last couple of years, there's been a lot of attention in the Drinkware category. A lot of growth driven off desirability, fashion, trend sort of cycling in and -- and I think when you look at YETI's performance during that time, we didn't ride the trend hard, and we aren't writing the trend hard on the other side. And I think that's really a testament to the underlying strength and diversification of the Drinkware business. And so as we look forward, we see Drinkware and this expanded definition of drink where being an important contributor to YETI's overall growth story.

Great. Maybe shifting gears to another important strategic priority for YETI, which is broadening the brand. I know you talked a lot about getting strengths with product innovation, but - starting at a high level, we still get questions from some investors, and I'm sure those that are new to the story about what drives competitive differentiation for YETI. So can you maybe walk us through the competitive boat or the secret sauce of the brand to support strong and sustainable ROIC?

Yes. It is reasonably simple. It's make great product, tell consumers why they should care about it and to support the things that are important to them. And I think that's what we've done from the very beginning is we brought product to market that had a shocking performance attribute and along that line of durability performance in design. We told consumers, and this is our brand building efforts, our marketing efforts, our partnerships, our engagement, why they should care why it's valuable to them. And then the third one that I think is incredibly important is we support the things that our consumers care about. And if you look at the way we've built this brand across communities, these enthusiasts, active communities.

You look at the things that we've done going all the way back in the fishing, surfing, skateboarding barbecue, Mountain Sports, we show up for our consumers in the places where they care and then the product fits in those environments and backs it up. this more recent conversation we've had a lot about our interest in sport and what's happening at Global sport. I believe that sports is the last great live entertainment source. And whether you're watching sports digitally live or whether you're participating in sport or whether you're attending sport, there's very few things like it in the global participation. And then below that, all of the different opportunities there. And we recently announced our partnership with League One Volleyball and the fast-growing interest in what's happening in professional women's volleyball the waterfall of that is down to the influence that it has at the club level in junior and youth level.

And so connection of a professional league all the way down to the Youth League with a really passionate followings incredibly strong. We just recently announced the National Women's Soccer League is a partnership with the National Women's Soccer League, and then we have these licensing partnerships across a lot of the other major sports and the things we're doing at the collegiate level. All of that is with an eye towards make product that's relevant for the environment, then tell people how your product can enhance whatever they're doing, whether that's sideline sports all the way up to the professional level. and then show up for them. And I think that's been a formula that's worked for us for the better part of our 20 years.

Got it. That makes sense. And you talked a lot about partnerships. But as you think about your marketing and advertising playbook going forward, what are the biggest shifts in how you're allocating spend across channels, whether it's digital retail media, influencers and what's driving those changes?

Yes. I mean we believe deeply that a foundation in endemic spend around marketing and brand is incredibly important because that sets your roots really deep. And then as you broaden out those routes will allow you to go do more broad-based things. So it's everything from deep endemic marketing, which we've traditionally had. We just ran our largest brand campaign over the last few weeks here in the U.S. And it was really focused on top of the funnel, brand awareness, allocating more to keep YETI as a brand top of mind because we think those routes are really deep in the specific areas, pursuits, communities in which we operate.

As we think about the lower and mid funnel, as we think about demand creation and performance marketing spend, one of the things we're watching really closely is where is the consumer discovering where is the consumer considering and then where is the consumer ultimately transacting. And we're dynamically allocating our dollars based on what we think is going to be a rapidly and continuous change to where consumers want to shop. I think it's also why we really focus on the diversity of our channels to market, the diverse wholesale channels to market, the diversity within our D2C business. Because at the end of the day, I want to be where consumers want to shop and changing consumer behavior is incredibly hard and incredibly costly, particularly in an environment where you have what I believe will be continued disruption across that discovery consideration and purchase. And so our focus is allocate dollars to where we think the demand is where the learning is happening.

Got it. And the last one I want to ask on the brand, just a follow-up because you talked about the new brand campaign during earnings. And again, just now, can you maybe give a little more detail on the significance of this new brand campaign, kind of how maybe how it compares to what you've done historically?

So we've done linear and Connected TV in the past, we run brand anthem kind of things. This was really, for us, what we believe is the start of a sequence of building top level kind of keep YETI top of mind out there in note consumer. So what was more significant about this one is we were very targeted in and thoughtful about the times we did it. We wanted -- and this ties back to the sports thing is the one thing people watch real time and live is sports. And so the campaign that's run over the last few weeks has been really targeted around major sporting events, the collegiate level at the professional level.

Because we want to capture consumers when we can get their attention, particularly in a noise or noisier environment. What's different about this. So this was in the fourth quarter, it had a little bit of a holiday theme. It wasn't just pure brand. It had an undertone of YETI in connection to the holidays. I think going forward, you're going to see us lean further and further into just keeping the brand out there, while we're doing all of this groundwork, this foundational route building route expanding work.

Maybe turning to the global expansion side of your priority list. How do you think about where that mix could go long term? And maybe tying into this change in marketing, is that across every single geography or is that more a U.S.-centric comment?

Yes. I'll start with -- it's probably less a change in marketing than an amplification of what we've done. And really, it's that allocation of as our portfolio has gotten broader as our audience is broader, as our channels to market get broader, the -- keeping those very bespoke targeted things, but the most efficient way to kind of bridge all of that is to have a halo over it. And so that's a little bit of the -- what I'll call the evolution versus transformative move in our marketing.

We got to say internationally, in our more established markets, they will start to benefit from some broader-based marketing, but this campaign was really -- this first campaign is really a U.S. -- really U.S.-focused. In our developing markets internationally, they will benefit more from the ground game than the air game. And so really, it's that focus on building those connections. The one asset that's been true for YETI since the very beginning is peer-to-peer referral is the highest form of discovery, and it's the that connection is the strongest form of you have to. You need to buy this cup or you need to buy this cooler or you have to have this bag. It's my favorite XYZ.

I think for where international can go I think about where we were in October 2018 and talking about going public and our international business was tiny and how big could it be? We're call it, 20% of our sales that are non-U.S. right now. So the top end of where it can be, I think, is much bigger than it is today. And then I look at the penetration and the potential we have in the U.K. and Europe, the Australia aside the relatively -- or significantly underdeveloped opportunity we have in Asia, the brand resonance that we're seeing globally, those early green shoots of opportunity and consumer reaction we're seeing. So we're excited about the international opportunity. We think that's going to be one of the pacing items for our growth going forward.

What are some of those green shoots that you're seeing? And how does that inform you where you want to allocate then more dollars and growing internationally?

Yes. I think Continental Europe, the opportunity to build out our wholesale footprint there. We're seeing one of the benefits of launching first in Europe in late 2019 was the quick disruption of wholesale there. So we had the opportunity to focus on building a strong e-commerce business. Over the last couple of years, we've been filling in the wholesale piece, but the e-comm business gives us an indication of where demand is, where the brand connection is. So that's given us the opportunity to go target markets. I think Central Europe, the doctor region fit with the brand, product relevance, highly engineered, highly designed products. And I think the incumbent market creates an opportunity for us to step right into it.

Japan, we've talked a lot about really launched in earnest in Japan this year. I think the Japanese market is really attractive. I think broader North Asia is really attractive. And then down the list of the big markets, China is right up there. You talked about in the last call some what I'll call sort of secondary and tertiary markets that we've entered efficiently through distribution. But when I think about Asia, it's really Japan, Korea or North Asia broadly and then China, are the really the three big opportunities.

And maybe remind us how you think about gross margin by different geographies and how that might evolve over time as well?

Yes. So what we've said pretty consistently is if you normalize for channel mix, the gross margins outside the U.S. are very similar to what we see in the U.S. The dynamic is the channel mix is different outside the U.S. So it's -- we're roughly 60-40 in total it's closer to 50-50 outside the U.S. And the driver of that is we just don't have our full D2C sales model. There are marketplace opportunities that we have not pursued outside the U.S. The corporate sales business is not at scale in many regions outside the U.S.

So -- but if you normalize for that, our gross margins are pretty similar to what we have in the U.S. From an op margin perspective, the markets where we've been in the longest, Canada, Australia, very profitable. the markets where we're investing, where we're growing the fastest Europe and then now Japan, obviously a little bit lower, but we expect those to improve over time, and then we'll get into new opportunities from there.

Maybe just one other quick follow-up on international. You alluded to direct-to-consumer kind of leading the business. Do you see any lead lag in terms of product categories as well and how that evolves over time?

Nothing that I would call out that's kind of material. I would say, as we continue to evolve the product portfolio, what it allows us to do in these newer markets is to actually think differently about go-to-market and think about merchandising. When we went into some of the early markets 7 years ago, we had what we had. And if we were going to be there, we're going to be there with the assortment. I think today, what it gives us the opportunity to establish the brand the way we want to bring a market relevant portion of our global product portfolio to really establish in a different way.

And so it's not -- you don't have to necessarily get the product it was YETI in the U.S. 10 years ago to be a relevant market. So that's the privilege of building out the product portfolio. There are markets around the world. We may be more known ultimately as a bags Drinkware brand and a hard cooler soft cooler brand. And I think that -- as long as it all stays consistent under the brand umbrella. I'm perfectly fine with that. I think I think it's great.

And one other one on the international side. Anything that you can share on the competitive front that might be different versus folks sitting in the U.S. that may be more used to seeing certain different types of competitors here, but maybe it's different overseas that we're not aware of.

Yes. I would say largely, no. There's a number of global competitors or offerings that are out there. There's always some local market folks, but I wouldn't say established, entrenched type competition. I think the biggest thing that you deal with is just different consumer behaviors. So just state the obvious size becomes a thing, drinking styles, what you're consuming could become a thing global coffee, global tea type markets versus cut full of ice large-format type thing. So I think it's more of that than there's a different competitive dynamic.

I think the other thing is market by market, the channels to market, how consumers buy, which markets are more digitally advanced versus kind of traditional brick-and-mortar. And so that's where we nuanced the model on the go-to-market, but I wouldn't say the competitive environment is fundamentally different.

Great. So then moving to -- we have some questions on capital allocation and some financial questions. But first, can you give an update on your capital allocation priorities? And more specifically, what drove your decision? You recently increased your share repurchase expectations for 2025.

Yes. So we said last quarter that we increased our share repurchase target in 2025 from $200 million to $300 million. But I'd say our capital allocation priorities have stayed pretty consistent. We want to invest in growth, both via internal capital investments. We want to find product-focused acquisition opportunities, and we want to continue to return capital to shareholders via buybacks. And you've seen us do all those things. We've had a relatively consistent amount of capital investments across technology, supply chain capacity, product development.

We've made in the last 2 years, made four product-focused acquisitions where we've acquired the IP, the technology, the design, the capabilities, the tooling around new products. And the most recent example of that is the summer we acquired the rights to a shaker bottle, and we're able to relaunch that under the YETI brand this quarter, and we're super excited about the opportunities that, that will give us from a growth perspective and access to a market that we believe is large and growing around protein shakes, supplements, et cetera.

And then last, capital allocation or share repurchase. We've in the last 2 years, including this year, we'll have repurchased $500 million worth of our stock. And what gives us the confidence to increase that? I mean, obviously, we have an incredibly strong balance sheet. We've been in a net cash position for a long time and continue to be in one. This year, we'll do approximately $200 million of free cash flow. That's on top of the roughly $450 million that we've done the last 2 years before this one. So it's just our ability to -- given the balance -- the strength of our balance sheet, our ability to generate consistent free cash flow. And then also when we look at our conviction and the growth opportunities ahead of us and where we trade, we believe it was an opportunity for us.

Got it. That makes sense. So maybe starting high level, just thinking about the consumer sentiment and wholesale sentiment, which you talked a lot about on past earnings calls. How are you thinking about consumer sentiment at this stage and particularly as we enter the fourth quarter and into 2026.

I mean, it's always tricky to kind of comment on how is the consumer doing? I would say our focus is what we know works when you drive brand desirability when you innovate in our categories, which are premium, but they're approachable price points, you can continue to drive consumer engagement. And I think we've seen that over time. I think one of the underappreciated aspects of the brand is the giftable nature of our products. And you have this interesting scenario where the relative purchase price of our products versus the value of the receipt of the gift is disproportionate. So you think about $30 or $35 up versus the joy of getting a custom cup with something on it for the holidays or a cooler or a backpack or so I think when you go through these times where there's broadly consumer uncertainty and is the consumer across different household incomes healthy or not healthy.

That's really where our focus is on driving that. And I think for this year, in particular, there's obviously a lot of noise in the system. And so for us, we look at '25 really as a setup year for 2026 and beyond. And the expansion and setting up of our Drinkware business, the expansion of our soft cooler bags and bags businesses, driving some innovation in our long-standing hard cooler business. Driving expansion in our protective case storage and organization products. So I really look at this year as a matter of will set up '26, and '26 sets up our long-term growth ambitions.

Got it. And so I have a few on gross margin here. Maybe I can ask them in sequence, but in the near term, can you -- you expect less than 5% of your cost of goods sold, exposed to U.S. tariffs out of China or to be exposed to U.S. tariffs to China by the end of 2025. How should we think about the annualized tariff impact as you continue to reduce your sourcing exposure from China? And then what do you view as an achievable long-term gross margin once normalize and one of the building blocks you see to get you there?

Yes. So first of all, I think we're very proud of our team and the work that they did this year to execute on what we asked of them, which was to accelerate our supply chain transition. It's something we set out to do a few years ago, but we really accelerated things this year, and we're very pleased with the work that they've done there. We talked about gross margin through 2025. We haven't given guidance beyond 2025 and 2026. We'll obviously have more to say on that, both in 2026 and the long term in our February earnings call and then follow up at the Investor Day that we've talked about would be in the first half of next year. But here's what I'd say around tariffs and the impact of tariffs on our gross margins.

Obviously, it's a -- it has been a challenging year and that from that perspective. As we look to next year, I mean, the majority of our tariff costs this year were on goods sourced in China and imported into the U.S. As you state, the volume that we'll purchase will be -- will go down in 2026 as we've largely transitioned. Number two, the rate recently went down from 30% to 20%. At the same time, we've got the tariffs that we pay rest of world where we only had a partial year this year, and we'll have to annualize that next year. And then we get into our mitigation levers. I mean we've shown a consistent ability to drive costs out of our supply chain. And we will continue to look at price as an opportunity. We took some pricing action early in this year before tariffs were announced, but we will continue to look at that as a lever as well. So Again, those are the factors that are driving it, and we'll have more to say on gross margins again in February and then at our Investor Day later in the first half.

Got it. And maybe just one follow-up there because you did cite a benefit last quarter from selective price increases. So how do you assess where you have additional pricing power without elevating any sort of promotional risk?

Yes. I mean what I'd say is that pricing is something that historically we have not used that lever consistently. I mean, we believe that consistency of price is important. When we are evaluating price, we look at a number of factors. We look at the relation of products within our portfolio. We look at where we stack up versus other products in the market. We obviously have our gross margin and profitability goals. And so what I'd say is it's just a -- we're going to do the right thing, balancing both profitability and growth and making sure that we continue to grow the business but do so profitably.

What was that price taken laterally across geographies? Or is it specific to the U.S. and individual categories?

It was heaviest in the U.S. I mean, we're always -- there may have been a few actions that we took outside the U.S. But by large, it was a U.S. pricing move.

Okay. And you said that you are hesitant to take price, but is that something where you've looked at the results then, and so that's something you'd be considering in those other markets is, hey, this is a testing ground because it's a bigger market to see how this played out? Or are those markets different just because they're more developing?

I would say -- I don't know if we're hesitant to take price. We're just really thoughtful about price. And one of the things people don't -- you talk a lot about price in general in relation to the market, we probably spend as much time thinking about price in relation to the rest of our product portfolio plus the innovation we have coming as we do what's competitive on the shelf. So when we see price opportunity, we take it. And I think that's kind of the process we're under right now. I would say, on the international, in general, we want to have harmonization globally on our pricing. And so the things that we would have taken price ex U.S., we're really around, okay, that -- there was a pricing mismatch between the U.S. and internationally or a mismatch in the -- in the product stack up that they had.

So we're not hesitant to take price internationally, we just don't take a lot of unilateral across-the-board price increases because we think from a -- the value from the consistency with the consumer is you end up with numbers that just get a little bit wonky and what they look like from a consumer perception. So historically, what we've done is -- and part of the reason, I think we were able to execute the supply chain transformation and historically drive cost out is these relationships we have with our suppliers to be able to work it from an operational side versus work it through just price.

I want to go back to something you mentioned in your remarks in the very beginning, which you referenced or alluded to disruption that could be happening or big changes that could be happening. It sounded like it was related to maybe marketing channels could be related technology. So I want you to maybe clarify what you were referencing. I don't know if it was an AI-specific comment and how that could change channel shifts.

Yes, I think it's broadly -- the speed of consumer behavior change can be disruptive around the models of how they how they purchase, where they purchase, when they purchase, why they purchase. And so yes, it could be Agentic shopping. It could be distributed commerce. It could be in environments where there's more discretion with consumer discretionary spend that they're multichannel shopping to make sure they get value. And that's one of the things that we've been watching closely is not just am I getting a deal on something but am I getting the right price.

And so you tend to see that's where the rise of marketplace is playing into it, what you're seeing in some of the reports out there around AI and Agentic shopping and how brands are showing up in recommendation list. And so that's more what I was talking about. And I think we're going into a period where the next coming months, years, I think you're going to continue to see that be topical.

So as a follow-up on that, how are you thinking about AI's impact on your business? Or how are you trying to plan to leverage AI more whether that's on the DTC side or more broadly?

I mean I think like a lot of people are trying to figure it out and figure out where the value pools are because there's a lot of -- there's for sure a lot of distraction and you can go a lot of different directions. And so what we focused on is things that we think drive or have the potential to drive growth in consumer engagement and things that we think have operational benefit. And so we called out on the call, we're using in some of the natural traditional places in our customer service, customer experience areas. We're using elements of it in product development, product design, we're using elements of it in marketing concept development.

But I think some of the more interesting yeti.com, we've now added an AI assistant on yeti.com, that helps with the shopping experience and the discovery, and we're starting to gather the data on the impact that has on the consumer journey. We're also focused on understanding these models and how we make sure that off-platform when somebody is using something for off-platform discovery that we show up in that search, and we called out on the last call some of the rankings that we're seeing there. And so it is we're active in those elements across the entire value chain from things that drive growth all the way through the things that drive efficiency.

Great. Maybe going back to drinker just for a question here. It's historically held, I think, 100 higher margin than the Coolers & Equipments side. Can you speak to the margin profile of new product introductions in the Drinkware segments of the cookware, shaker bottles, food storage, how they compare to legacy Drinkware and maybe holistically how you're thinking about mix going forward?

Yes. So that's right. I mean our Drinkware is roughly had 1,000 basis point been higher than coolers and equipment in total from a gross margin standpoint. I would say historically, we have some products that we developed that are above the average, some below, but it's largely consistent. And I'd say going forward, and the new products that we've released recently, is no different. We've got some products that have been higher than the average, some below. And whenever we do new product development, looking at gross margin, looking at cost, looking at price, looking at gross margin is certainly a piece of that and making sure that we sort of maintain healthy gross margins are part of it. So there's going to be some that are some above, some below, but largely consistent.

Got it. And one more on Drinkware. You talked about how sales for 2025 include a roughly 300 basis point negative impact from your supply chain diversification efforts. And I believe that's predominantly in Drinkware. So can you maybe give an update on, I guess, exactly what's been driving that and how you're feeling about whether there might be any lingering impact as you go into 2026 or if that completely goes away.

Yes. I mean what I'd say is the drivers of that, you're correct. It was largely Drinkware. It was us. As strong as this year has been from a new product development, new product launch standpoint. I mean we have had to shift some products out that we had planned, number one. Number two, for the first time, we made the decision to launch products, new products outside the U.S. first before we launched them in the U.S. We've never done that before, but that was from a capacity and inventory supply standpoint, that's what we had to do.

And then third, just the supply of new and existing products was lower than we've and where we typically run and typically targeted and you can see that in our inventory levels from a year-over-year standpoint. Just shifting the significant effort to shift the supply lines from China to other countries. It just limited us from a supply standpoint. I think that by the end of this year, we'll largely be there and as we get into the first half of next year. But it has been an impact on our growth this year.

Yes. We're just out of time. So please join me in thanking Matt and Mike for all the thoughts. Thank you.

Thank you.

Good morning, ladies and gentlemen, and welcome to the YETI Holdings Third Quarter 2025 Earnings Conference Call.

[Operator Instructions] Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, November 6, 2025.

I would like I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations at YETI. Please go ahead.

Good morning, and thank you for joining us to discuss YETI Holdings' Third Quarter fiscal 2025 Results. Leading the call today will be Matt Reintjes, President and CEO and Mike McMullen, CFO. Following our prepared remarks, we will open the call for your questions.

Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K and subsequent Form 10-Qs. Take no advisor update looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis.

We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com.

I would now like to turn the call over to Matt.

Thanks, Arvind, and good morning. YETI's third quarter performance highlights growing momentum from consistent and strong execution against our long-standing strategic priorities, driving product innovation, broadening our brand and addressable market and expanding our global presence. These initiatives are yielding meaningful results and building towards what we believe is a long-term top line growth range of high single to low double digits.

Our product innovation pipeline has never been more robust, extending and deepening our portfolio. Our brand is connecting with both legacy and new customers domestically and abroad. Our international growth is accelerating with exceptional performance in U.K. and Europe robust consumer demand in Australia and Canada and a great early read in Asia with more opportunity to come. Strong consumer demand for our products across channels and geographies, combined with recent innovation continues to reinforce the durability and growing relevance of the YETI brand.

This demand translated into top line growth, fueled by robust double-digit gains in our Coolers & Equipment category and our international markets. These results were achieved despite softer U.S. e-commerce performance and significant caution in wholesale selling, which created a notable gap compared to very strong double-digit sell-through across both Drinkware and Coolers as reported in that channel. The quarter underscores the strength of our diversified go-to-market strategy, our ability to meet the consumers shop and the accelerating impact of our international expansion.

Turning to growth and starting with product innovation. Our products continue to set the standard for durability, design and performance. Our 2 core categories, drinkware and Coolers and equipment anchor a dynamic portfolio built on 13 scalable product platforms fueling innovation and long-term growth. These platforms are featured in our updated quarterly highlights presentation available on our Investor Relations website.

Across these platforms, we are on track to launch more than 30 new products in 2025, even as we navigate strategic trade-offs to advance supply chain diversification. Importantly, we have a robust pipeline that is aligned with the continued momentum of our brand and positions us for sustained expansion. As we stoke the brand globally, we create natural opportunity for product innovation, expansion and vitality. Within Drinkware, the strength of our core portfolio and our uptempo focus on innovation is driving accelerated momentum despite ongoing wholesale inventory pressure and promotional intensity in the U.S. market.

Even as overall sell-in was down year-over-year in the U.S. wholesale, sell-through strength highlights the underlying momentum of YETI, in particular, the durability of our Drinkware business in that highly contested market. It reinforces our global strategy of building a sound foundation through diversification to set up for growth in Drinkware in Q4 and beyond.

Our innovation this year has spanned across several Drinkware platforms, showcasing the diversity and range of our portfolio. Recent launches include our insulated bottle updated Rambler drug ceramic line drinker and a cast iron ore [indiscernible] pan. Within the last 2 weeks, we launched our silo jug built for everything, from sports to job sites and outdoor. This is a that works not only for athletes but for anyone looking for large capacity, easy-to-access hydration with YETI cold holding power.

We believe this launch continues to position YETI as a go-to brand across a wide range of use environments and very naturally fit with our expanding focus on sports. Looking at the remainder of the year and into 2026, we're energized by feedback we've received from our partners about the innovation ahead in Drinkware, including the upcoming release of our YETI Shaker bottle, featuring a patented design that improves upon the standard shaker, providing an incredible mix experience while removing the traditional wire ball. This speed to launch is enabled by the acquisition of the design, tooling and IP we communicated in our second quarter call.

With the shaker bottle, which will be manufactured in the United States we are targeting a roughly $2.5 billion market, fueled by the rapid growing demand for hydration powders, protein supplements and wellness products, aligning with Yeti's expansion into sport, health and wellness. Early feedback from wholesale sports and health partners has been very positive.

The acquired design and IP comes from Helomics, which will cease operations as we relaunch an updated design to build upon the market awareness and momentum from Helimix's over 39,000 4.5 star reviews on Amazon. This quick turn launch represents a compelling opportunity to drive organic growth going into 2026 and deliver a margin-accretive product line with a strong ROI. Importantly, this further hires in new and existing markets. The breadth of innovation across our Drinkware portfolio is demonstrating clear traction and setting us up for continued success in long-term category leadership.

In Coolers & Equipment, our double-digit growth for the quarter underscores the broad demand we're seeing across the portfolio. On the innovation front, our day trip soft coolers saw significant demand. Additionally, we have several highly anticipated day trip line expansions planned in the coming months to address an even wider market opportunity.

In bags and packs, we continue to see strength across new and legacy products with notable performance in backpacks, totes and doubles. Following strong demand for Camino totes, which sold out across channels a number of times, we've worked to replenish inventory through limited rereleases and are partnering with our retailers to capture some of the anticipated holiday demand and sustained momentum of this iconic product.

In hard coolers, our Roadie and Tundra families continue to extend reach even as we lap the significant debut of the Roadie 15 and Roadie 32 in the prior year. The recent additions of customization capabilities on a range of our coolers unlock significant opportunities, particularly among our existing partnerships and sports relationships. Last month, we launched an expansion of our storage and protective case platform with the GoBox One, which comes at a giftable price point right in time for the holiday shopping season. Expect to see much broader expansion here in 2026.

I'm also very excited about the build-out of our global innovation capabilities. Our Thailand Innovation Center focused on hard goods is now fully operational and already driving impact, giving us the capability to significantly increase our speed and capacity for product development. In addition, pleased to announce a new development and innovation office in Vietnam to open in early 2026, dedicated to the design and development of bags and soft cooler bags. This will complement our existing product talent and capabilities in Austin, Denver, Bosman and Thailand. Together, these innovation centers will enable a 24/7 global cycle across both current and future products and provide us with the ability to respond with even greater agility to market opportunities, fueling long-term growth and competitive advantage. It's clear that our product expansion and innovation are working. And as we look forward with our pipeline stronger than ever and significant white space ahead, we are well positioned to execute.

Our second strategic growth priority focuses on broadening our brand and our global customer base through brand awareness community engagement and a unique omnichannel strategy that enables us to reach consumers where and how they shop. We are amplifying our brand marketing as we approach Yeti's 20th anniversary. Starting later this month, we will release our largest ever U.S. brand campaign around major sporting events in the run-up to peak holiday shopping. Partnering with the incredible talent at Widening Kennedy, we're on the front end of shaping the next decade of our brand. This brand campaign will span linear connected and digital media.

Additionally, to amplify our reach, particularly on social platforms like TikTok, we've added a new media partner to drive this effort. These initiatives mark a significant step towards elevating YETI's always-on brand presence and impact, connecting to our powerful foundational audience while broadening our reach. In terms of engagement at the local level, in Q3, YETI activated at over 80 events worldwide, deepening connections with consumers across the ions and communities. To that end, our sports presence has never been higher. Following the launch of our strategic partnership with Fanatics, we are now licensed with the NBA, rounding out Major League relationships across NFL, NHL, MLS and MLB.

We're also proud to have recently signed on as an exclusive partner including courtside presence for League One volleyball, a fast-growing women's professional valuable League and parent to roughly 2,000 youth and junior teams and 24,000 players. Internationally, YETI's footprint is expanding through continued partnerships with top clubs and teams, including Tottenham Hotspur, now featuring YETI on the front of the women's team training kit, the New Zealand All Blacks, Oracle Red Bell racing and more to come. Our limited edition team product launches and signature cut programs continue to power these partnerships into consumers' hands.

At the collegiate level, YETI has outfitted over 50 NCAA schools and 80-plus Division 1 teams covering almost 4,000 athletes, including a strong combination of both women's and men's sports. As we continue to grow our sport relationships, we see further exciting potential to expand our channels to market from youth up to professional. These initiatives highlight YETI's accelerating momentum in sports from grassroots to the global stage supporting athletes with high-performance products and driving brand growth across new audiences and markets. As we execute our brand-building strategy, YETI is unlocking significant opportunities for global growth, leveraging strategic partnerships and a refreshed media approach to expand our reach and our influence.

Shifting to our channel performance. The continued expansion of our product portfolio, combined with our diversified presence across channels, is a key part of our strategy to broaden our audience. Our wholesale channel demonstrated very strong momentum despite a continuation of more cost is ordering and tighter inventory management from our retail partners, particularly in the U.S.

Sell-through trends remain strong, reflecting healthy consumer demand throughout the quarter. As we enter year-end, we are well positioned from a channel inventory perspective and feel great about our setup heading into 2026. Last month, we started a new wholesale partnership with Nordstrom, where YETI is being featured in their holiday gift activation across 91 doors and online and permanent placement in 70 Nordstrom Home doors. This new retail partnership underscores our focus on adding complementary distribution channels to support our diverse product portfolio.

In our direct-to-consumer channels, we continue to leverage our omnichannel approach to meet evolving shopping behaviors with speed and agility. YETI's Amazon Marketplace continues to see strong performance in our corporate sales business once again exceeded expectations, supported by expanded customization capabilities across hard coolers and select bags as well as our growing partnerships in sports and hospitality.

Notably, our collaboration with Fanatics, a leading global digital sports platform is off to an exceptional start. This partnership significantly expands YETI'S presence in the sports licensing market and is already driving strong engagement across fan communities. We're incredibly excited about the momentum we're seeing and the opportunities ahead as we build on this performance and further accelerate growth across our consumer and commercial channels.

On yeti.com, traffic and average order value grew in Q3 with strong engagement around new product launches. Conversion rates remained pressured in the quarter, impacting our overall performance and reflecting a greater prevalence of deal shopping by consumers. In response, we focused on effective deployment of performance marketing spend, prioritize higher-quality traffic and launched targeted initiatives to improve conversion efficiency. In the near term, we're optimistic about our upcoming Dear garage event, which is expected to further elevate customer engagement and drive traffic and purchase intent. These efforts are laying a strong foundation for yeti.com in 2026.

In retail, we remain focused on maximizing the performance of our existing stores. During the quarter, we launched localized branded apparel and accessories in 16 stores to add a unique impulse purchase moment. We also introduced immersive walk-throughs on yeti.com to showcase the YETI retail experience. With more initiatives planned for Q4, we're building upon our retail foundation to support the next phase of growth and continued impact on the rest of our channels to market.

Our third key growth driver is expanding our global presence. The YETI brand continues to build as we execute our proven go-to-market strategy across our international markets. I recently spent time in the U.K. and Europe with a number of iconic global brand partners. I walked away from those meetings incredibly energized about the mutual brand respect, passion and creativity for working together. Mike will talk further about the performance in the quarter and the setup for Q4 but suffice it to say, we're on the front of the global wave.

Europe continues to show outstanding growth led by excellent performance in the U.K. and continued traction across key European markets. In addition to the recent partner meetings in the U.K. and Europe, I also joined partners across Asia earlier this year. The energy and momentum is undeniable. Combined, these markets echo the early surge we saw during YETI's rapid U.S. expansion and again, in Canada and Australia. What's unfolding is not just market growth. It's a product-led brand endorsed movement. We're confident in the trajectory ahead and energized by the opportunity it represents.

In Japan, our presence continues to scale quickly with over 270 doors open to date and 400-plus stores expected by year-end. Looking ahead with our core leadership team in place, our priority is consistent execution of our go-to-market strategy, leveraging the strong fit between YETI's premium positioning and the Japanese consumers' appreciation for quality. We see the broader Asia region as a key long-term driver of international growth potential.

This year, complementing our launch directly in Japan. We added distribution in Thailand. In addition, we have signed distributor partners and are planning launches in 3 Asian markets next year, Malaysia, Singapore and the Philippines. We are also making progress against our plans and potential partnerships in Korea, China, Indonesia, Taiwan and Hong Kong. In Canada, consumer demand for YETI products continues to be robust even as our wholesale partners remain cautious during the third quarter.

Seasonal colorways and innovation across categories are resonating in Canada highlighting the relevance of our diverse product offering and the impact of our localized brand strategy. In Australia, we delivered growth across all channels in core categories during the quarter, and we anticipate further acceleration in Q4. Brand enthusiasm remains strong, positioning us for sustained momentum through the end of the year and into 2026.

Going into 2026 and beyond, we continue to see attractive opportunities for further global expansion across the Middle East and South America. In terms of supply chain transformation, our diversification plan is well on track with key factory partners now live across multiple geographies. These partners are consistently meeting our high standards for quality and cost. We continue to expect that by year-end on a go-forward basis, less than 5% of our total cost of goods sold will be exposed to U.S. tariffs on goods sourced from China.

And importantly, our multi-country sourcing strategy will be fully operational. As we look ahead to 2026, we're extremely well positioned with a more resilient flexible and diversified supply base that strengthens our ability to scale globally while mitigating geopolitical and operational risks. As we navigate a dynamic macro, our fortress balance sheet and very robust free cash flow generation continue to underpin strategic investments in growth and innovation.

At the same time, it enables us to execute our growth-oriented capital allocation priorities in addition to creating value through share buybacks. With $173 million in share repurchases year-to-date, we are upsizing our 2025 plan from $200 million now targeting $300 million by year-end, bringing our total repurchase to $500 million across 2024 and 2025, representing approximately 14% of our shares outstanding.

Alongside our growth and disciplined capital allocation, we're making investments and focusing resources on potentially transformative technologies, including artificial intelligence to unlock new growth opportunities, enhance consumer engagement and drive efficiency. We're early on the journey but committed to it. Our AI strategy spans high-impact applications from automated custom image moderation reducing the necessity for manual processes, customer support, sites, search advanced marketing analytics and back-office automation tests.

We are also leveraging AI to amplify brand visibility in the evolving search landscape. Recent initiatives include AI-enabled product customization including the launch of a Gen AI photo to line art feature to elevate consumer creativity and the launch of Ranger, a conversational shopping assistant designed to boost conversion on yeti.com.

Our efforts around AI-driven content optimization helps secure YETI the #1 share of voice across major AI discovery platforms over the past quarter, and we've modernized our marketing measurement with AI-powered [indiscernible] modeling. These initiatives not only differentiate YETI, but also deepen consumer insights enable data-driven decisions and create the potential to strengthen long-term margins.

As it relates to our full year 2025 outlook, we remain confident in our disciplined execution against a well-established strategy, and we believe we are well positioned to continue our momentum into year-end. I'm incredibly encouraged by the global feedback we're receiving underscoring growing passion for the YETI brand, strong enthusiasm for our products in anticipation for the innovation ahead.

As mentioned last quarter, we plan to hold our Investor Day in the first half of next year. Today, we're excited to announce that we'll be hosting the event in Austin, Texas to fully showcase YETI and where we are going. We will be providing additional details on the event in the near future.

Looking ahead, we're entering an incredibly exciting chapter for YETI, driven by immense passion for our brand, the amazing quality and innovation in our products and the scalable nature of the business model. We have strong foundation to build off as we advance the business towards the global growth potential for YETI with a clear focus on execution against our strategic priorities.

I'll finish by thanking our team and partners for their commitment to building this brand the right way. setting us up for the incredible potential in front of us. With that, I'll now turn the call over to Mike.

Thanks, Matt, and good morning, everyone. I appreciate you all joining us today. I'll start by reviewing our third quarter 2025 performance, then share our outlook for the full year. Following that, we look forward to taking your questions. As a reminder, all results presented on today's call will be on a non-GAAP basis to better focus on the operating performance of the business during the quarter.

Let's begin with the top line. In the third quarter, we delivered sales growth of 2%, reaching $487.8 million, which was above our expectations. This performance was driven by double-digit growth in both our Coolers & Equipment category and in our international business. In addition, we are incredibly encouraged by the underlying momentum we are seeing across the business. Consumer demand is strong, and our recent innovation is resonating even as caution persists among consumers and wholesale partners.

Looking at our product categories, Drinkware sales declined 4% to $263.8 million, which was in line with our expectations. The U.S. drinkware market remains challenged during Q3 with similar levels of promotional activity as compared to the prior quarter. However, there was real strength within key pieces of our broad and diversified Drinkware portfolio. And outside the U.S., Drinkware continued its growth trend. As we said last quarter, we believe that our global drink wear business will return to growth in Q4, driven by innovation, international growth and as we lap the more challenging market dynamics that began in the fourth quarter of last year.

Coolers & Equipment had a strong quarter globally with sales up 12% to $215.4 million. Bags had a fantastic quarter across the full portfolio of products, and we saw strong growth from soft coolers. Both categories benefited from recent innovation, and we believe that there is tremendous opportunity for growth in each category going forward. Diving into performance by channel. Direct-to-consumer sales grew 3% to $288.7 million. Our Amazon Marketplace continued its strong performance even in the face of a softer Prime Day event as compared to last year, underscoring consistently strong consumer demand for the YETI brand within this channel.

Corporate sales continued to deliver soft solid growth, and we are excited about the growing number of strategic partnerships that we are developing around the world. When combined with an expanding portfolio of customization capabilities, we believe this will enable us to capture demand while at the same time growing our brand on a global basis. As for e-commerce, while we were pleased with the performance of our international sites in the U.S., yeti.com saw a continuation of trends from Q2.

Traffic and average order values grew year-over-year but conversion continued to be a challenge, which we believe is a sign of a discerning consumer. In the wholesale channel, sales increased 1% to $199 million in the third quarter. Our international wholesale business delivered good growth, both on a sell-in and sell-through basis. In the U.S. wholesale channel, strong C&E performance was offset by a decline in the drink work category, stemming from a continuation of trends seen in the second quarter, elevated promotional intensity, coupled with conservative ordering from some of our wholesale partners but we believe the underlying trends and sell-through are incredibly important.

We observed double-digit sell-through growth in the U.S. for both C&E and Drinkware. This accelerated the trend we saw in the prior quarter where sell-through growth is exceeding selling growth and has resulted in a reduction in our channel inventory levels versus the prior year. We believe this positions us well for the future, especially when combined with the exciting new U.S. distribution opportunities that we have announced this year, including Fanatics and Nordstrom.

Moving to our international business. Sales outside the U.S. grew 14% to $100.4 million, representing approximately 21% of total sales in the third quarter. This reflects growth in every region, Europe, Australia, New Zealand and Canada as well as very early contribution from our launch of Japan. Europe was the real growth highlight in Q3, continuing the trends that we have seen this year. We have tremendous momentum in the U.K., where we continue to benefit from growing brand awareness, strong consumer engagement and increasing interest from wholesale partners.

Also, we are pleased with the progress we are making in Japan. This is a foundational year for us in Japan, hiring the team, establishing relationships and building the infrastructure that we needed to capitalize on what we believe is a tremendous opportunity.

Now moving down the P&L. Adjusted gross profit decreased 2% to $272.5 million or 55.9% of adjusted sales compared to 58.2% of adjusted sales in the third quarter of last year. This 230 basis point year-over-year decline was driven by a 320 basis point unfavorable impact from higher tariff costs. In addition, a lower mix of Drinkware sales in the quarter had an 80 basis point unfavorable impact on gross margin. These were partially offset by a 60 basis point benefit from continued product cost savings a 50 basis point benefit from selective price increases executed early this year and a 60 basis point benefit from a number of other smaller factors.

Adjusted SG&A expenses in the third quarter increased 3% to $205.9 million or 42.2% of sales compared to 41.7% in the prior year period. We continue to make strategic investments to drive future growth in key areas such as product development and technology, while at the same time, taking a disciplined approach to managing our operating expenses. On an adjusted basis, operating income decreased 16% to $66.6 million or 13.7% of sales and net income decreased 18% to $49.6 million or 10.2% of sales. Adjusted net income per share decreased 14% to $0.61 versus $0.71 in the prior year period.

Our EPS this quarter includes a $0.14 net impact from incremental costs associated with tariffs announced in 2025.

Turning to our balance sheet. We ended the quarter with $164.5 million in cash as compared to $280.5 million in the prior year quarter. During the third quarter, we repurchased 4.3 million shares of YETI's common stock on the open market for $150 million, bringing the year-to-date total to 5 million shares for $173 million. Total debt, excluding finance leases and unamortized deferred financing fees was $74.9 million compared to $79.1 million at the end of last year's third quarter.

From a total liquidity standpoint, we ended Q3 in a substantial net cash position and with our $300 million revolving credit facility fully available. Inventory decreased 12% year-over-year to $324 million, reflecting strategic management of our inventory purchases and continued supply constraints related to our supply chain transformation.

Now turning to our updated fiscal 2025 outlook. We now expect full year sales to increase between 1% and 2% versus fiscal 2024 adjusted net sales and as compared to our prior outlook of flat to up 2%. This updated guidance continues to include an approximately 300 basis point unfavorable impact related to our supply chain diversification efforts and subsequent inventory supply disruptions, which is consistent with our previous outlook.

From a product perspective, we expect C&E to be up mid-single digits and drinkware to be down slightly for the full year fiscal 2025. As I mentioned earlier, for the fourth quarter, we continue to expect positive growth in Drinkware, reflecting the impact of recent innovation, growth outside the United States and the lapping of market dynamics that we began to see in Q4 in 2024. From a channel standpoint, we expect D2C growth to be slightly above wholesale growth in fiscal 2025.

Geographically, we are maintaining our outlook for our international business as we continue to expect growth of between 15% and 20% in fiscal 2025. This implies an acceleration in international growth in Q4, reflecting the timing of order patterns that we mentioned last quarter and the continued strong consumer demand that we have seen throughout this year.

In the U.S., we anticipate a low single-digit decline for the year, largely due to the dynamics within the Drinkware category that we have discussed. That said, we remain encouraged by the resilience of our U.S. Drinkware business, and we anticipate improving growth trends in the fourth quarter.

We continue to expect gross margins for the year to be between 56.5% and 57%, as was the case last quarter, this reflects an approximately $40 million or 220 basis point net impact from tariffs. Trade policy discussions are ongoing, and the ultimate outcome regarding tariff rates remains uncertain. In our guidance, we are assuming that the latest tariff rates as announced, remain through the end of the year. But given the late timing of the year and our successful efforts to transition our supply chain, the recent reduction in the tariff rate on goods imported from China will not have a material impact on our gross margins in 2025.

We continue to expect operating expense growth of between 2% and 4% versus the prior year. This reflects the impact of ongoing investment in our growth initiatives, partially offset by continued cost optimization. We continue to expect operating income for the full year to be between 14% and 14.5% of adjusted sales reflecting a net unfavorable impact of approximately 220 basis points from higher tariff costs versus the prior year.

Below the operating line, we continue to expect an effective tax rate of approximately 25.5%. We now expect full year 2025 diluted shares outstanding of approximately $81.5 million versus our previous outlook of $82 million. This reflects the impact of our increased share repurchase target through fiscal year-end to $300 million versus $200 million in our prior outlook.

Reflecting the narrowing of our sales guidance and the impact of our increased share repurchase target. We now expect adjusted earnings per diluted share of between $2.38 and $2.49, including an approximately $0.40 net unfavorable impact from higher tariff costs versus the prior year. Consistent with our previous outlook, our capital expenditures for the year are projected to be approximately $50 million. Our capital spending remains focused on advancing our technology, launching innovative products and strengthening our supply chain.

We now expect free cash flow of approximately $200 million in 2025 compared to the prior outlook of $150 million to $200 million. As it relates to year-end inventory, we continue to expect a decline year-over-year. We are proud of the results we delivered and the growing momentum we created in the third quarter, especially against the backdrop of a persistently dynamic macroeconomic environment and heightened overall consumer caution. This performance reflects our unwavering commitment to executing on our strategic growth priorities.

At the same time, we continue to focus on fortifying our supply chain, exercising cost discipline and capital management, and driving operational excellence. These efforts are designed to support sustainable, long-term global growth and deliver value to our shareholders.

Now I will turn the call over to the operator to take your questions.

[Operator Instructions] Our first question comes from Randy Konik with Jefferies.

I guess, Matt, you led off the call this in and you said something to the effect of, we see this business long term having a growth algo potential of high single digits to low double digits, I believe. Maybe kind of think about -- not -- I don't necessarily need the timing of that but maybe kind of think about or give us kind of the building blocks you think about to kind of get back towards that growth all go in time? How do you kind of put all those pieces together? Obviously, on the product side, and the GEO side. Just give us a little more framing up of how you think about that. That would be helpful.

Thanks, Randy. I appreciate the question. I think as people who have followed along with the story since our IPO, everything in this business is built on product and making great product. And I look I look at where we were a year ago, growing 9% where we've been since the IPO, low double-digit growth CAGR. I look at the setup that we have across innovation, both the strength of our existing portfolio I think you started to hear that on the call today, the things that we saw in the third quarter, the buildup for the rest of the year in the U.S., in particular, the expansion opportunity, the drive we've seen in C&E, which is really driven by both legacy products and new expansions and the things that we're seeing that are really exciting in the bags.

The second big 1 is the brand reach. And I think this brand continues to grow globally. We reach new audiences. We have new interactions with consumers we create more opportunities to bring YETI products into different ports or parts of their life.

And then the third one is, as I said on the call, I think we're -- from a global perspective, we're on the front end of the wave. And so when you step back and think about what the growth algorithm going forward for YETI is it's going to be built on innovation, both the performance of the products we have today and the expansion is going to be built on the continued brand relevance and deep connection and the reach that we have with the brand.

And the third one is the global opportunity we have in front of us. And I think that's what we started to see in Q3. I think we've indicated the things that we'll see in Q4, and it's what we're excited about as we go into 2026 and be beyond.

That's great. And then I guess my follow-up on the wholesale side, can you just kind of elaborate a little bit more? It sounds like the sell-through is very strong sell-ins more subdued. I'm talking about the United States market and the wholesale. Should we expect that the sell-in start to improve as inventories get worked down, improvement to 2026. And on the direct-to-consumer side, you talked about, I believe, a conversion down but traffic and AOV eating, I believe up. as you launch more things like the silo jug in my 8 [indiscernible] because I bought it for him, he loves it, as you kind of keep pushing out more and more newness and it gets more and more attention to it, do you think that these traffic levels and continue to rise and convert to 2023? I just want to get your pro [indiscernible]?

Thank you, Rick. It is an incredible product that we're really excited about. And I think it exemplifies the strategy we have. And I think it's why we've had the results and why we continue to be bullish on what's happening in Drinkware particularly in the U.S. And we're building on that incredible foundation we have and really think that the forward look and the opportunity in that category is great.

I think when you talk about the U.S. wholesale, the sell-in, sell-through dynamic, I think we always start with looking at sell-through, where is the consumer demand in that important to us that importance of that moment to sell to and interact with consumers see their demand for YETI is outstanding, and we're really used about what we see there. The sell-in dynamic is sensitive to what's happening with from an inventory position. I think it's disproportionately a Drinkware story. And we said this for the last quarters. We expected the Drinkware category to settle out.

We work very closely with our wholesale partners on what their inventory is. And we've seen, we believe, categorical destocking happening around drinkware. The grades is we're seeing the strength on the consumer demand. We're seeing the strength from the innovation. We're seeing the strength of the opportunity to go forward as we talk about the portfolio that we have coming in Drinkware in particular.

As it relates to D2C, we always want to look for strength in that traffic and AOV are both really positive signs, I think, in our dot-com. The conversion rate is really something that we're focused on, how do we drive more efficiency, more productivity, higher conversion of the people that are showing up on our dot-com site. But I think what the results show is it exemplifies the power of our omnichannel strategy. And we talk a lot about, we want to be where consumers are shopping. We're thrilled with the performance we've seen on the Amazon marketplace. We love to see our wholesale partners showing really strong sell-through growth and consumer demand, and we continue to invest behind making yeti.com a flagship place for discovery consideration and ultimately purchase, which should continue to improve the conversion.

Our next question today comes from Brooke Roach, Goldman Sachs. .

Mike, I was hoping you could help us understand the scaling opportunity of some of the new sport focused launches that you are putting into the marketplace in the back half of this year, whether that is the fanatics, the sport jug and some of the blender boring into the marketplace, kind of contribution do you expect from that as you go over the course of the year? And will that be the return to growth? What's the forecast for your core business of legacy products?

Thanks, Brooke. I'll the front end of that. And Mike set out on the topic. What I would say largely is we feel really good as we look at our Drinkware portfolio and the innovation been driving and the diversification. We've had these conversations over quarters as that category had a lot of attention around it. And we said our strategy is diversified, and build a strong foundation in base and then grow off of it. And I think that when we look across the portfolio we have today, it isn't about the things we've done coming in bottles and jugs.

We're really excited about the tumblers and cups. We just had a release yesterday, of a launch format straw and you can see what the social response to that was an elite proof, large handled tublet. We're really excited about that travel mug but when we look to sport and where we're going, we believe we can play from the sideline to the home, to the outdoors, to the job site. And I think that the jug is an incredible versus all YETI product in that way.

I think where the sports come into play is that connection of Fantom and connecting brands, the channels to market that Fanatics offers the licensing partnerships that go through existing wholesale partners that we have and provide a direct-to-consumer opportunity, I think are really exciting. You'll see us continue to innovate in that category because we believe that ports on top of our outdoor legacy on top of our historical fishing legacy is an incredible way of expanding our audience through innovation, through connection to consumers. And so we're really excited about where this is going.

It's Mike. So in terms of the forecast, I mean, I'd say it's all part of what we talked about as why we believe Drinkware will return to growth in Q4. I mean, we said it was driven by innovation. This is obviously a piece of that. The sports shut we talked about silo talked about, the shaker bottle launching this quarter. It will be late in the quarter, not a huge amount, but it's all just part of that overall innovation story.

And then the second thing we talked about is why we believe that Drinkware can return to growth in Q4 is just the international growth story and the opportunities that we see to continue to grow Drinkware as we expand internationally. So it's all part of the overall story.

Our next question today comes from Peter Benedict, Baird.

I guess I'll ask about the promotional environment as you think about the double-digit sell-through U.S. wholesale for Drinkware, how much of promotion is driving that? And -- and then how do we square that with kind of the lower conversion that's happening on yeti.com, is there just a higher promotional cadence in wholesale and not as much on your site.

Just trying to understand that and understand how you think about the promotional cadence in the holiday and going forward and how much you do and how much your partner to do.

Peter, thanks for the question. I would say a couple of things. We've been talking for a number of quarters that not only did we expect Drinkware in the U.S., in particular, to be promotional in nature but it's been consistent, and we've seen that. And that's across brands, go out and do market surveys. You'll see that out there I think for us, we've had a really nice combination of sell-through driven by the innovation that we've launched. And when we look at, we talked about our Wetlands came, when we look at this new launch of the silo jug, we've got this travel straw that just announced yesterday. We go back over the quarters and look at the innovation that we brought to market in color material finish in form factors, we really believe that innovation expansion, brand relevance is the thing that drives YETI not a -- it really drives it in an environment that is highly promotional and continues to be that way.

From our promotional posture, our promotions are consistent with things that we've done in the past. As we transition out of colors transition out of styles. And we'll continue to do that. As we get bigger and the portfolio gets bigger, there may be incremental ones we do just based on the numbers. But I think largely, what we're focused on is how do we drive the premium nature of YETI, the desire for the innovation, the looking to YETI for what's new. And I think that's what our team has done an extraordinary job this year amidst an incredibly complex supply chain transition, of which I'm really proud of the work we've done and the setup that we have both in innovation and the posture of our global supply base for 2026.

I think as it gets to yeti.com and the conversion, I really think that there's -- we're continuing to watch where consumers want to shop at some changing and shifting behaviors. I think that ties in a little bit to some of our comments on the call about how we're looking at AI and what that does to search and how we play into it. And so it's an area we're really focused on but the overall display is the power of having our diverse omnichannel to market from wholesale through our diverse D2C all the way to our dot-com and our retail stores. I think that's -- we want to be where yet can win.

Our next question today comes from Phillip Blee from William Blair.

So I just want to talk a little bit about the fourth quarter. The implied guide assumes a bit of a sales acceleration, can you maybe just provide a bit more color on your confidence there. A lot of retailers are calling out consumer demand that's been increasingly choppy. But are you seeing any of that? Or have you already seen some of that improvement in sell-in or sell-through quarter-to-date? And then just a clarification question on Drinkware the category should inflect positive in the fourth quarter but do you see the potential for the U.S. market to return to growth? Or is it maybe more of an international?

Thanks for the question. So I'd say both your questions are related. So as we look at Q4 and where we sit today, I mean, we've been -- all year long, we talked about strength in C&E and we saw that in Q3. We had a really good back quarter, really strong soft coolers quarter. in an overall really strong C&E quarter in both the U.S. and international. In Drinkware, really strong outside the U.S. in Q3 and then in the U.S., it played out about like we expected. But as we've consistently said, when we look at the innovation we have coming, when we look at the growth outside the U.S. that we think can continue and we start to comp some of those that when the market dynamics really started in Q4 of last year. We expect to see a stabilization but the factors that sort of combined to say that, hey, we believe we can get Drinkware back to growth in Q4.

We believe we can continue the growth we've seen in C&E. And that should lead to a better outcome in the U.S. market. when you run the math, it kind of says the U.S. based on our guide, will definitely improve as we look to -- from Q3 to Q4. And I think it's all those factors that we've talked about. You mentioned consumer demand being choppy. I mean, really, like Matt mentioned, consumer demand was at a sell-through level was strong in Q3 and we feel good about that as we head into Q4.

On the DTC side, I think the choppiness comes from across channels. So Amazon and corporate sales have been strong U.S. e-commerce has been a little more challenged. But overall, we feel good about where we are as we head into Q4.

[Operator Instructions] Our next question comes from Peter Keith, Piper Sandler.

This is Alexia Morgan on for Pierre. I was wanting to follow up on the previous question. So international in Q4 implies a pretty big step up just to get to the 15% to 20% guidance for the year. I was wondering what gives you confidence there on that step-up? And then also what level of international growth is sustainable to support your provided long-term algo for high single to low double-digit sales growth.

Yes. Alexia, thanks for the question. So I'd say you are correct. So the guide would imply a step-up from Q3 to Q4. But I'd say a couple of things. One, the step-up is in and around the level that -- of growth that we have seen over the last quarters or so, last year and in the first quarter of this year. So it's not like we're not getting back to levels where we've been before. number one. Number two, all your lung, we talked about some timing differences related to international wholesale that growth is going to move around a bit. You saw the return of us back to double-digit growth in Q3, and we expect that momentum to continue as we go into Q4.

But also, just like in the U.S., we have some consumer demand reporting that gives -- that has remained strong outside the U.S. And so when we combine all those factors together, it gave us confidence that we can get back to the levels that we would need in Q4 in order to hold our guide for the year.

In terms of long-term international, I mean, obviously not giving any guidance beyond 2025 this year or this quarter -- but what I'd say is we believe when we look at the opportunities that we have in Europe, that we have in Asia, both in Japan and beyond that based on some of the comments that Matt made this morning, we still believe we have a significant opportunity in front of us and the word we've used is we believe we're on the front of the wave in terms of what we think the opportunity is outside the U.S.

Our next question today comes from Joe Altobello, Raymond Jame.

I want to quickly touch on Paris. You have a net tariff impact this year of about $0.40 per share. I realize you're not giving any kind of guidance for next year, but just trying to get an idea of what that might look like going forward?

Yes. Thanks for the question. So I mean, you're right. We're not giving any kind of guidance beyond 2025 on this call. There are also a lot of moving pieces. So on 1 hand, you've got the rate on imports into the U.S. from China coming down recently, won't have a material impact on 2025 given the timing, like we've said, for most of this year, China has been at 30%. And by the end of this year, we will largely be out of China for goods imported into the U.S. we will see an annualization of the full year impact of tariffs in other countries outside of China.

I'd say the other thing is given how we've diversified our supply chain. We now have the opportunity to look at where we produce and optimize our sourcing based on where tariff rates sits. I mean, there are some countries that we in which we source that do not currently pay a tariff. So I think next, we'll look for ways to optimize our cost, continue to partner with our suppliers, and then lastly, we'll also look at price. So there are a lot of pieces moving around, and there's work for us to go do that we're going to continue to go do.

So not giving guidance specifically beyond this year other than to say it's something that we're watching closely and that we will -- it's a -- it remains a significant priority for us, and we'll have -- and we'll continue to work at it.

That's helpful. And just kind of quickly looking at this quarter, were U.S. sales up if you exclude Drinkware?

Well, I think -- yes, I mean, we didn't give the specific number, but we talked about T&E strength in the U.S. and international. So I think it's fair to say that U.S. sales were up, if you exclude Drinkware, correct?

The only thing I would add to that is, if you really think about and you'll see it in our revised investor deck a more blown out view of our product portfolio. But really, the drag in our Drinkware business is pretty concentrated around that trend-driven last couple of years style. And the overall strength in our drink business is what gives us confidence in the expansionary strategy, the innovation, the growth we're driving, the relevance to consumers. So it's -- I think -- and that's why we feel good about the forward look.

Our next question today comes from Molly Baum, Morgan Stanley.

I want to follow up on your thoughts around 4Q, specifically the holiday season. I know you mentioned that you had a softer Prime Day versus last year. So can you maybe give a little bit more detail on what drove this? And if that's -- if there's any read through there on what we might expect for some of these key holiday selling periods.

Molly. So Yes. We mentioned overall strength on Amazon despite a softer July Prime Day versus the prior year. And we saw that we weren't alone and sort of seeing that. So I think the holiday time period is different. It's not 1 event. It's over a longer period of time which I think placed our advantage a little bit because that's what we saw in Q3. Was that just sort of sustained demand -- strong consumer demand on Amazon. But it's just 1 piece of our overall growth story in Q4.

Obviously, our dot-com business and what we have planned around gear garage is always an important piece of our Q4 business and we feel good about where things stand and what we have planned. We will -- obviously, we believe, given the overall strength on Amazon, we're set up for a good holiday season. And then as we're just talking the U.S., obviously. I mean we feel really good about where our international business is toleration that we have planned in Q4.

So I don't think you can take a direct read through from Prime Day and apply it to the holiday season because there's just too many other factors at play.

Thank you. Our next call -- sorry, our next question today comes from Noah Zatzkin form KeyBanc Capital Markets. .

I guess just on kind of the M&A front. I think there was kind of a thought some time ago that maybe tuck-ins would kind of play a role in how you're thinking about the long-term algo. So how do kind of tuck-in acquisitions factor into the high single-digit to low double-digit long-term growth rate? And then just in general, kind of how are you thinking about M&A more near term?

Thanks, Noah. I appreciate the question. A couple of things I would say. We obviously talked a lot on the call and you have seen over the last couple of years, our capital allocation priorities. And disproportionately, it's been a really strong sign in the buybacks that we've completed. And as we communicated on the call, with the upsized target for the year, it would be $500 million over the last 2 years in buybacks. And I think that shows the conviction we have in what we're doing at YETI and what's in front of us.

As it relates to acquisitions in that, what I would call, very targeted deployment of capital around technologies, designs, IP is really all innovation-focused. And so if you go back and look at the types of things that we've done, it's not tuck-in in the traditional sense of the tuck-in of a business or a brand. It's really about access to capabilities so that we can accelerate the innovation pipeline. We did it with the expansion we've had in bags underneath the YETI brand, and you saw that starting earlier this year, and we're excited about what's to come in 2016 and beyond.

In the cast iron, we had an opportunity to get a small niche design, make it a Yeti design, enhance it, bring it to market and really set a marker out there in the market for what we can do in this expanding Cookware and culinary world. And then the shaker bottle, similarly, we got a chance to get something that was unique in the market from a design perspective enhance the product and bring it back to the market, which is what we communicated will happen in Q4. And so those opportunities, I look at them as adjuncts to the investment we make in the people, technologies, processes we have inside the business.

And so we'll continue to look for those, which sort of jump the curve on getting product to market, jump the curve on technology, expand sort of our open innovation, our Ace Hardware thought process. But suffice it to say that our forward look on this business is driving growth underneath the YETI brand that we think complements our channels to market, complements our brand extension strategy. and really addresses consumer needs and consumer opportunities we see.

Our next question today comes from John Kernan, TD Colin.

This is Chris Zuber on for John. Just on the international sort of bigger picture, the double-digit growth you've demonstrated through much of this year and the international mix of sales now around roughly 20%, how are you thinking about the margin profile of this business relative to the U.S. or the company average overall? And then just secondly, on the product launches. You've talked about the opening of the Thailand Innovation Center, complementing the Austin Center. Now you're adding Vietnam, you're on track to exceed roughly 30 new product launches this year. Is that how we -- and how are you thinking about the run rate of launches going forward?

Appreciate the question. I'll take the first question and then we'll pass it to Matt for the innovation question. So international margins, so what we said is that there's some channel and product mix differences across the different regions. But from a gross margin perspective, when you normalize for that, our gross margins are pretty similar to the U.S., outside the U.S. versus the U.S. And so from an operating margin standpoint, I really think it kind of varies by where the region is and it's maturity. So regions where we've been in for a while, Canada, Australia have really strong profitability places like Europe and Asia, where we're building, where we're growing brand awareness, we're investing. Obviously, it's a little different.

So I think you'll start to see as Europe continues to grow and become a more mature piece of our business like Australia and Canada, then I think you'll see that start to -- Europe starts to sort of progress toward where Australia and Canada are but then you've got our efforts in Asia where we're going to be investing as well. So that's kind of how I would think about it. There are a lot of moving parts in there but it's really -- from a gross margin perspective at a channel level, they're very similar.

What I would add is as we think about the cadence and pace of innovation, it's really less about this year versus 35% next year versus 25 or whatever the numbers may be last year. It's really about opportunity we see product market fit, opportunity to merchandise in our existing channels to market opportunity to expand our channels to market, intercept the consumer at a new buying occasion. But what I think Thailand, Vietnam, Bosman, Denver, Austin offer us is immense capabilities to respond to market opportunities we see to bring innovative products to market, to control our innovation to partner with the best contract manufacturers around the world to bring it to the consumer and our partners in the most efficient and effective manner.

And so I think everything from ideation to the innovation, to the development to ultimately the sourcing and execution. We're building capabilities to take advantage of the global opportunity that we see. And that includes the continued penetration growth deepening of our relationships in the U.S., which is an incredibly important market to us and the expansionary opportunities that the rest of the world offers.

Our next question today comes from Anna Glaessgen from B. Riley Securities.

SP27401604 I had kind of a bigger picture question. Thinking through the long-term algo kind of why reiterate that high single digit to low double-digit growth now. And -- to what extent is -- or thinking through balancing a few investments required to drive the innovation required to get to that growth versus maybe seeing some more OpEx leverage in the out year 4 years beyond.

Anna, thanks for the question. I'm going to do my best. I think I got most of that but let me kind of take a crack at it and if you have a quick follow-up, we'll address it. The timing is when you really think about we're building this brick by brick. We've always been product focused. We've always been brand expansionary focused. We've always talked about the international opportunity.

I think what we have seen build over the last number of quarters and really kind of came together in Q3 is the kind of foundational opportunity we continue to see in the U.S., the global opportunity we're seeing outside of the U.S. the proof points of the reach the brand is getting in this next evolution in connection as we talked a lot about sport.

In the innovation, both the investment we've made, which we think is a very scalable investment that has a high return but the strength of our existing portfolio to continue to drive us forward and the impact of the expansionary growth. And so it was a great time for us to start that build towards this moment, and then we'll go into our 2026 guide in the Q4 call when we're back together and it will go into an Investor Day. And all along, what I expect from YETI is what we have seen since we went public in 2018, which is we just continue to execute. We continue to build this brand the right way. We continue to innovate and lead the market, and we continue to find new market opportunities around the world.

And I think that's as simple as the rationale is, and we think the algorithm builds into that.

Thank you. There are no further questions at this time. I will now turn the call over to CEO, Matt Reintjes. Please go ahead.

Thanks, everyone, for joining us. We look forward to connecting on our fourth quarter call. Have a wonderful rest of the week.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the YETI Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025. I would now like to turn the conference over to Arvind Bhatia, Head of Investor Relations, at YETI. Please go ahead, sir.

Good morning, and thank you for joining us to discuss YETI Holdings' Second Quarter fiscal 2025 Results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we will open the call for your questions.

Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K and subsequent Form 10-Qs. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law.

Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the Investor Relations section of our website at yeti.com.

I would now like to turn the call over to Matt.

Thanks, Arvind, and good morning. Before we discuss our second quarter results, I want to take a moment to acknowledge the devastating floods that recently hit our home state of Texas. Our hearts continue to go out to our Central Texas community, the families and friends impacted by this tragedy. I specifically want to acknowledge and thank the first responders, volunteers and our long-standing partners at operation relief, who deployed to provide meals to impacted communities all over the country during natural disasters. Give them a follow. Their simple act of a hot meal is incredibly impactful. We're also deeply grateful for the overwhelming support and generosity of the YETI community across all 50 states who stepped up to purchase the special edition Texas Strong Tumbler, all sales generated from these 10,000 ramblers win to support the long road to recovery in County, Texas.

Turning now to YETI. I'm excited to share that we are making excellent progress on our long-term strategic priorities, driving innovation, expanding our global presence and broadening our customer base, plus more near term, transforming our supply chain. These efforts are delivering results in several ways. We're seeing increased momentum in product innovation with notable strength in bags and packs. Our international expansion is thriving with outstanding performance in the U.K. and Europe and strong demand from our end consumers in Canada and Australia.

Our brand continues to grow, resonating with audiences, both at home and around the world. At the same time, we're executing a major transformation in our supply chain that is setting us up extremely well for 2026 and beyond. While top line demand in Q2 came in slightly below expectations, reflecting ongoing macroeconomic uncertainty and cautious behavior from consumers and our retail partners, we believe the actions we're taking position us extremely well for long-term sustainable growth in both revenue and earnings.

I'd like to take a few minutes to outline how we plan to deliver on our growth ambitions, beginning with product innovation. First, we are on track to open our Asia-based innovation center in Thailand later this month. I had the opportunity to visit and meet with our local team in July, and I came away energized by their talent, passion and capabilities. This facility will complement our Austin Innovation Center, significantly increasing our speed and capacity for product development and further enhancing our innovation capabilities. Importantly, it marks a critical step towards establishing a 24/7 global innovation cycle, continuous product generation, faster time to market and greater agility in responding to market opportunities.

Second, our teams continue to execute exceptionally well against a robust innovation pipeline. As a result of the up-tempo pace of innovation you have seen, we're now on track to exceed our prior target of launching 30 new products in the fiscal year, even while making strategic trade-offs to advance supply chain diversification. A large portion of these new launches are limited to initial releases, setting a stage for the full force of our innovation to power our growth in the quarters ahead.

In Drinkware, while the market remained highly promotional and as we have discussed, continues to shift away from the recent trend-driven growth, we remain focused on broadening our portfolio in sustainable innovation while maintaining our discipline on high-quality, profitable growth. We are seeing this play out in response to our first food bowls, insulated food jars, updated rambler jug and travel model. We expect similar momentum later this year as we expand into our new half-gallon and 40-ounce sports jugs. Meanwhile, straw bottles and stackable cups continue to perform well for us. Our underlying innovation in Drinkware is performing well and as we have seen the market cleanup, we are expecting to return to growth later this year, driven by our innovation and stabilization in the overall Drinkware category.

Supporting our continued reach and relevance in health, wellness, sports and lifestyle, we recently acquired designs, tooling and intellectual property to enable us to bring a patented, category-leading shaker bottle into the YETI family. This innovation fits seamlessly with our commitment to delivering premium high-performance products. Moreover, our accelerating innovation and launch of exciting new products under the YETI brand showcases how we leverage open innovation in combination with our powerful internal product development machine.

In Coolers & Equipment, our new smaller format, but high-performance and appropriately named Daytrip soft coolers positions us well in the $50 to $150 price band and complements our $200 to $350 high-performance soft coolers. The data has demonstrated impressive early traction even with limited inventory in the second quarter. Higher-priced soft coolers were more challenged in the quarter as we saw some evidence of consumer trade down. While we expect the higher end products to be staples of our portfolio long term, we are pleased with our strategy to capture a consumer up and down the price and performance ladder.

We also extended our highly regarded chairs with our first beach chair, launched just in time for the peak summer. In addition, our Roadie 15 and wheeled Roadie 32 hard coolers, which launched a strong reception more than a year ago, have continued to see great performance.

In bags and packs, our momentum is unmistakable. Our rugged all-weather Cayo backpack debuted in late Q2 to rave early reviews and exceeded our initial expectations. Meanwhile, the Ranchero backpack introduced in Q1 continues its ascent, recently clenching the title of Best Outdoor daily pack by Men's Health. These wins not only underscore our relentless commitment to innovation but also cement our leadership in delivering performance-driven, highly sought after gear supported by a broad brand umbrella.

Equally exciting is the performance of our long-standing Camino totes and Crossroad backpacks. Camino has experienced a notable spike recently, is mostly sold out domestically across all channels, including yeti.com and wholesale. For context, Camino launched in 2018 and has garnered over 5,000 4.8 star reviews. It's a great product, full stop. And as many of you have heard me say over the years, it might be YETI's most versatile product and has been my personal favorite since launch. The broadening consumer interest highlights the product's incredible design and styling backed by practical versatility and durability. With a large market opportunity in bags and Camino innovations on the horizon, we're well positioned to build on this momentum and deliver meaningful growth over the long term.

This wave of enthusiasm for Camino is creating a halo effect, fueling elevated interest across our bags and packs lineup including our everyday travel and drive bags and amplifying our brand momentum.

What we are seeing with Camino underscores the enduring popularity and the lasting appeal and reliability of our innovation in the market. Speaking to the timeless nature of our brand and design, our product remains bestsellers years after launch, reflecting not only the desirability, but also the functionality. Overall, we expect our Coolers & Equipment business to perform well in the back half as our bags category continues to build and inventory availability for our innovation improves.

I'm very encouraged by how our product engine is gaining momentum and how well we're positioned to build on this strength in the second half of the year and into 2026. We continue to drive incremental investment towards product and R&D and are seeing the benefits of this investment.

The second key growth pillar for us is international expansion. I'm pleased with how the YETI brand continues to resonate strongly outside the U.S., supported by a growing diversified product portfolio and disciplined execution of our go-to-market strategies. Europe once again delivered very strong growth in the quarter. This reflects both rising brand awareness and the effectiveness of driving engagement with our localized approach. We believe our model is scalable and will support sustained growth across the European market.

In Japan, late in the quarter, distribution rapidly expanded from 17 to over 270 doors, and we're targeting more than 400 doors by year-end. We've also established a digital presence and initiated localized marketing to build awareness and engagement. In early July, we hosted our second successful trade show in Tokyo, drawing nearly 400 buyers, media and influencers, highlighted by strong enthusiasm and pent-up demand. As we move into the second half of the year, we're focused on executing our go-to-market, supported by strong alignment between the YETI brand and Japanese consumers' appreciation for premium well crafted product. Against a large outdoor market and early investments in community engagement and partnerships, we're optimistic about Japan and the rest of Asia's long-term potential as a meaningful contributor to our international growth.

In Canada, we're seeing sustained end consumer demand even as the wholesale sell-in environment is cautious. Localized marketing and strong performance from new innovation and color infusions have driven brand interest and momentum. Sell-through in Australia remains strong in our tracked channels supporting our positive international outlook. While certain retail partners slowed their purchasing during Q2 against expanding consumer demand, we're encouraged by the rebound we have seen quarter-to-date in Q3.

Our third key growth pillar is broadening our global customer base. We are relentlessly elevating brand awareness, deepening engagement and forging long-term loyalty for the brand. This commitment drives us to connect with more people, more meaningfully across the globe. To that end, I'm excited to announce today that we're launching a strategic partnership with Fanatics later this month. This collaboration significantly expands our presence in sports. Additionally, we are bringing team color drinkware and hard coolers to fans across all 32 NFL teams, many MLB, NHL and over 50 NCAA programs. Our products will be available on yeti.com, YETI stores, certain wholesale partners, fanatics.com, league and team sites and at live events, further strengthening our connection with passionate fan bases and driving long-term growth in this vertical. As we continue to deepen engagement with our global communities, our recent events and partnerships exemplify YETI's commitment to authentic connection and brand growth worldwide.

During the second quarter, YETI had a presence at over 70 events globally, connecting with diverse enthusiast communities across sports, culinary, entertainment and beyond. In May, we hosted our inaugural wild private dining room experience at the Ecology Center in San Juan Capistrano, California, to celebrate the launch of our outdoor Kitchen Collection. This immersive event featured a 5-course live-fire meal prepared by YETI Global Chef ambassadors and served in YETI cookware and tableware, attended by media, creators and ambassadors, the event brought our culinary story to life.

At the 2025 Calgary Stampede in early July, our long-standing partnership included direct sponsorship, consumer activation and meaningful engagement with media, ambassador and partners. Attendance was nearly 1.5 million and our on-site mobile customization machine drove strong sales performance. Importantly, we had YETI ambassadors competing with our own Chad Mayfield delivering a winning run. This was a standout example of multifaceted engagement delivering both brand impact and commercial results.

Our team in Australia proudly supported our ambassador in surfing legend, Mick Fanning's Charity Golf Day, which raised over $700,000 for flood affected communities in Northern New South Wales. The event reached an audience of over 11 million, amplifying the impact of this incredible organization. Last month, YETI had a large presence of the game far in the U.K., an annual celebration of British Countryside culture and a touchstone for YETI's U.K. community engagement. The event had nearly 130,000 attendees and marked our highest grossing 3-day selling event globally. It was awesome.

Our media strategy continues to amplify brand visibility and product storytelling through regional content like YETI presents, partner films, shorts and our new field test series. We're reaching audiences across platforms while showcasing the durability, performance and design of our products. This year marks the tenth anniversary of YETI Presents with 85 films released to date, generating over 33 million views and 2.6 million hours of watch time.

Our field test series pushes YETI Gear to the extreme. In the first episode shown across YouTube, Instagram and TikTok, our new all-weather Cayo backpack was subjected to harsh real-world conditions, mud, water impact and more, highlighting its rugged water-resistant design and reinforcing our commitment to performance-driven innovation. Meanwhile, recognizing the breakout momentum behind the Camino, our team acted swiftly to seize the opportunity, amplifying the surge in consumer demand with a targeted campaign by intensifying our social efforts and collaborating with key creators, we supported the product's position. Strategic digital activations and timely engagement with our community ensure that excitement translated into real business impact, solidifying the Camino's breakout status and laying the groundwork for sustained growth.

Looking ahead, the momentum we're seeing across global communities underscores the significant opportunity to further penetrate new and existing markets. To that end, we're making incremental investments behind both brand and social campaigns to increase reach, frequency and engagement as we expand our customer base and strengthen brand equity worldwide.

Turning to our omnichannel performance. As we expand our product portfolio, we continue to meet consumers where and how they prefer to shop. In wholesale, we saw some cautious ordering and tighter inventory management from partners. Despite this, demand remains strong for innovation and inventory levels remain healthy across the portfolio. We continue to monitor these dynamics closely while exploring new opportunities to expand our reach to underserved consumer segments.

In our direct-to-consumer channels, performance on the Amazon marketplace remained robust as we capitalized on the diversity of our omnichannel approach to meet evolving shopping behaviors. Corporate sales also delivered outstanding results propelled by our deepening strategic partnerships, especially in the sports and hospitality sectors as we continue to leverage our advanced customization capabilities. On yeti.com, site traffic was up, and we saw strong engagement with new product launches and a continuation of trends around increased customer value. However, conversion rates were below expectations amid less intentional shopping behavior. We're applying key learnings from our May drop days campaign to enhance account creation, engagement and conversion including early access designed to grow our customer base and build brand affinity.

In retail, we opened our 27th store in early June and plan to open our 28th store next week, which will be our last store opening for the year. While we remain very excited about the long-term retail potential for us. As I've previously shared, we are intentionally slowing the pace of new store openings in the near term. Our focus is on optimizing the performance of our existing fleet as we continue to see the positive impact in lift in our wholesale and direct channels in locations where a YETI retail store anchors the market. I fully expect future store expansion to be part of YETI's complementary go-to-market.

Next, I want to switch gears and talk about one of our highest near-term priorities, which is the transformation of our global supply chain. This year, I've had the opportunity to visit all of our key suppliers across Southeast Asia either factories and witnessed firsthand the incredible progress being made. I was fired up by the momentum on the ground and a clear commitment from our partners to support this critical transition. I'm pleased to report that we remain firmly on track with our accelerated diversification strategy. We continue to expect that by year-end, on a go-forward basis, less than 5% of our total cost of goods sold will be exposed to U.S. tariffs on goods sourced from China. Importantly, we will have our multi-country sourcing strategy fully in place. This is a testament to outstanding vision and execution by our product and supply chain teams. They are some of the best in the business, and I could not be more proud of the impact they are having on YETI.

This positions us exceptionally well to enter 2026 with a more resilient, agile and diversified supply base. One that enhances our ability to scale globally while mitigating geopolitical and operational risk. Amid a dynamic environment, our fortress balance sheet and healthy free cash flow continue to support investments in growth and innovation, while also advancing our capital allocation priorities, including share repurchases. Mike will provide a further update on capital allocation in his prepared remarks.

As it relates to our full year 2025 outlook, we are modestly adjusting our top line expectations to reflect a slightly more prolonged recovery in the drinkware market in the U.S. At the same time, we're raising our EPS outlook, thanks to our operating discipline and tariff relief on the China sourced goods, partially offset by new tariffs elsewhere.

Given the unprecedented tariff uncertainty and shifting macroeconomic landscape since we announced a targeted late 2025 Investor Day, we've made the strategic decision to move our Investor Day to the first half of next year. This timing importantly, will allow us to showcase the full impact of innovation acceleration in our broadening product pipeline, the capabilities of our diversified and resilient supply chain and provide a clear view of our long-term growth and margin expansion initiatives.

Looking ahead, with breakthrough innovation, surging brand momentum and a world of global opportunity in front of us, we have a great setup, redefining what's possible for YETI.

Summarizing my thoughts a bit here. I recognize that ups and downs can be part of any great brand and growth story, and some innings are tougher than others, but all great franchises string together wins season after season. While I like our track record, the opportunity in front of our team is even greater. I remain highly confident in our strategy, direction of travel and that this team will deliver on YETI's potential.

To emphasize the point, the strength of our brand is a key differentiator, resonating deeply with a growing base of loyal customers around the world. We're in the early phase of realizing the impact of product expansion and a significant global opportunity providing substantial runway for growth. We have built a tested, proven and resilient business model. I want to thank our YETI team for their passion and unwavering commitment to our brand and long-term vision. We're well positioned to continue to break norms and reset expectations of what a product should be and what a brand can be.

With that, I'll now turn the call over to Mike.

Thanks, Matt, and good morning, everyone. Let me start by reviewing our performance for the second quarter of 2025, after which I'll discuss our revised full year outlook before opening the floor for questions. As a reminder, all results presented on today's call will be on a non-GAAP basis to better focus on the operating performance of the business during the quarter.

In the second quarter, sales decreased 4% to $445.9 million, which was slightly below our expectations. As Matt mentioned, this was due to more cautious spending from both consumers and our retail partners. At the product category level, Drinkware sales declined 4% to $236.4 million. The U.S. drink wear market remained challenging, reflecting a more promotional environment compounded by temporary inventory constraints stemming from our ongoing supply chain transition, but we continue to be pleased with how our new products are performing.

Coolers & Equipment sales decreased 3% to $200.6 million in the second quarter. We saw continued growth in hard coolers, offset by a decline in soft coolers. Our bags business gained further traction as we expanded our product lineup and capitalize on the significant opportunities within the bags and packs market. As Matt mentioned, we expect our business in the coolers and equipment category to improve meaningfully in the back half of the year, driven by our innovation and improved inventory availability.

Turning to our performance by channel. Direct-to-consumer sales decreased 1% to $248.6 million, accounting for approximately 56% of total sales during the second quarter. Our Amazon marketplace remains strong, both in the U.S. and internationally as we leverage our omnichannel model and supported it with a strategic allocation of marketing dollars. Corporate sales also remained robust in the U.S. with momentum building internationally following the recent global rollout of customization and as we add strategic partnerships around the world. Strong performance in these direct-to-consumer channels was offset by softer U.S. e-commerce demand. We saw lower-than-expected conversion on yeti.com, which offset both higher average order value and higher traffic year-over-year.

In the wholesale channel, sales were $197.3 million, decreasing 7% compared to the prior year quarter with declines in both the U.S. and in our international regions. The year-over-year decline within our wholesale channels outside the U.S. was driven by ordering patterns by some of our retail partners, which I will discuss in more detail during my comments on our international business.

In our U.S. wholesale channel, the primary driver of the year-over-year decline was Drinkware, reflective of the highly promotional overall market and an increased level of caution from consumers and our retail partners. We believe this is a transitory issue indicative of macroeconomic headwinds. Our strategy to broaden our wholesale channel and drive engagement with a wide range of consumers across markets, pursuits and demographics remains unchanged. Finally, sell-through growth outpaced sell-in growth in the U.S. in Q2, and our overall channel inventory levels remain healthy, giving us confidence in our back half expectations.

Moving to our international business. Sales outside the U.S. grew 2% to $78.1 million, representing approximately 18% of total sales in the second quarter of this year. Europe continues to lead our international performance with another quarter of strong growth year-over-year. Our efforts to build brand awareness, expand distribution and scale our omnichannel model in Europe are gaining traction. Also, as Matt mentioned, our expansion in Japan during the second quarter marks an exciting step in the Asia Pacific region, and we are very optimistic about the growth opportunity we see in this market.

Within our international markets, direct-to-consumer sales remained strong. However, our international wholesale channels, primarily in Australia and Canada were more challenged from a sell-in perspective. We believe this is a 1-quarter dynamic that was driven by inventory balancing and overall caution by our wholesale partners in these two regions.

Sell-through in both Australia and Canada continues to be very strong, which gives us the confidence to hold our international sales outlook for the year. We will continue to extend YETI's presence and reach as we expand with both new and existing retailers outside the U.S.

Now moving down the P&L. Adjusted gross profit decreased 4% to $257.6 million or 57.8% of adjusted sales compared to 57.7% of adjusted sales in the second quarter of last year. This 10 basis point increase was driven by product cost optimization and selective price increases, offset by approximately 180 basis points of impact from higher tariffs. That said, relative to our most recent guidance, tariff costs came in lower than expected primarily due to the reduction in tariff rates for products sourced from China from 145% to 30% that was announced on May 12.

Adjusted SG&A expenses in the second quarter were $184.4 million, a decline of $3.1 million or 2% versus the prior year period. As a percent of adjusted sales, adjusted SG&A expenses were 41.3% versus 40.5% in the prior year period. We continue to manage our operating expenses tightly while also making strategic investments to drive future growth.

On an adjusted basis, operating income decreased 9% to $73.2 million or 16.4% of sales and net income decreased 7% to $55.2 million. Adjusted net income per share decreased 6% to $0.66 versus $0.70 in the prior year period. Our EPS this quarter includes a $0.07 net impact from higher tariff costs.

Turning to our balance sheet. We ended the second quarter with $269.7 million in cash as compared to $212.9 million in the second quarter of 2024. During the second quarter, we repurchased 745,000 shares of YETI's common stock on the open market for $23 million under our current $450 million share repurchase authorization. This is part of an overall plan to repurchase approximately $200 million worth of shares during fiscal 2025. In addition, we continue to deploy capital strategically to strengthen our innovation capabilities. This includes both investing internally and acquiring technology and design expertise. We believe that acquisitions such as the one we are announcing today along with what you all have seen us do with acquisitions in the bags, cookware and power cooler categories are great examples of targeted investments that will enable us to build long-term value.

Total debt, excluding finance leases and unamortized deferred financing fees was $75.9 million compared to $80.2 million at the end of last year's second quarter. From a total liquidity standpoint, we ended Q2 in a substantial net cash position and with our $300 million revolving credit facility fully available. Inventory decreased 10% year-over-year to $342.1 million, reflecting strategic management of our inventory purchases during the quarter.

Turning to our updated fiscal 2025 outlook. We now expect full year sales to be flat to up 2% as compared to fiscal 2024 adjusted net sales. Consistent with last quarter, we expect inventory supply disruption in connection with our supply chain diversification efforts to have an approximately 300 basis point impact on our growth this year. The primary driver of the change in our top line outlook is the performance of our Drinkware business in the U.S. We now anticipate our total Drinkware business to be in a range of flat to down low single digits in fiscal 2025 versus the prior year.

From a channel perspective, we still expect our wholesale and DTC channels to grow in line with each other this year. And geographically, we are holding our outlook for our international business to grow between 15% and 20% in fiscal 2025. As I stated earlier, the growth dynamics that we saw in Q2 were largely due to timing within our international wholesale channel. We expect the strong consumer demand trends that we saw outside the U.S. in Q2 to continue and to drive overall growth in the back half of the year.

Within the U.S., we expect our business to be down low single digits this year due primarily to the dynamics we have discussed in the Drinkware category. As it relates to phasing for the remainder of the year, for Q3, we anticipate that total sales will be in a range of flat to slightly positive versus last year with a decrease in Drinkware balanced by growth in Coolers & Equipment.

We are encouraged by the momentum we saw exiting Q2 and what we have seen quarter-to-date in Q3. Geographically, we expect U.S. sales in Q3 to decline relatively in line with what we saw in Q2.

Looking ahead to Q4, we expect a slight step up in total growth with growth across both our Drinkware and Coolers & Equipment categories. When we look at the pipeline of new products that we have slated for release later this year, it gives us the confidence that Drinkware can return to growth in Q4.

We are now projecting gross margins for the year to be between 56.5% and 57%, which is an increase of 200 to 250 basis points as compared to our prior fiscal 2025 guidance. This improvement is due to changes in tariff rates since our last update as well as our ability to drive cost efficiencies while undergoing a significant transformation of our supply chain. Trade policy discussions are ongoing, and the ultimate outcome regarding tariff rates remains unknown. In our guidance, we are currently assuming that the latest tariff rates, as announced remain through the end of the year, including a total 30% rate on goods from China and an approximately 20% rate on goods from other regions. Collectively, the net tariff costs included in this outlook is approximately $40 million or 220 basis points as a percent of adjusted sales.

From a phasing perspective, we continue to expect the year-over-year impact of tariffs to grow progressively throughout the year. We now expect operating expense growth of between 2% and 4% versus the prior year. This reflects the impact of ongoing investment in our growth initiatives, partially offset by continued cost optimization. We now expect operating income for the full year to be between 14% and 14.5% of adjusted sales, including a net impact of approximately 220 basis points from higher tariff costs versus the prior year. We expect a year-over-year decline in operating income percent to be relatively consistent in Q3 and Q4. Below the operating line, we expect an effective tax rate of approximately 25.5%, slightly better than our prior guidance. We now expect full year 2025 diluted shares outstanding of approximately $82 million, which reflects the impact of $200 million of stock repurchases anticipated through this fiscal year-end. We now expect adjusted earnings per diluted share of between $2.34 and $2.48 as compared to $1.96 to $2.02 in our prior outlook. The increase in our EPS outlook reflects the lower tariff rate on China sourced goods, partially offset by increased tariffs on imports from other regions since our last update. And our updated guidance includes close to a $0.40 net unfavorable impact from higher tariff costs versus the prior year.

Our capital expenditures for the year are now projected to be approximately $50 million, down from an earlier estimate of $60 million. This reduction mainly reflects a shift in accounting treatment for capital investments in our Memphis distribution center, which will now be recorded under cash flows from financing activities rather than investing activities. It's important to note that this year's capital spending remains focused on advancing our technology, launching innovative products and strengthening our supply chain. We now expect free cash flow of between $150 million and $200 million in 2025 versus our prior outlook of approximately $100 million to $125 million.

As it relates to year-end inventory, we continue to expect a decline year-over-year. As we move through the second half, we will maintain flexibility to increase our inventory based on our assessment of the market conditions.

In closing, as we navigate the current landscape of tariff volatility and heightened consumer caution, our determination to deliver on our strategic priorities remains unwavering. Each of our decisions is rooted in a relentless drive to invest in transformative growth initiatives and bolster our supply chain resilience, all while maintaining control over costs and effective capital deployment. With this disciplined approach, we are confident in our ability to achieve long-term sustainable growth and to unlock value for our shareholders.

Now I will turn the call over to the operator to take your questions.

[Operator Instructions] Your first question comes from Phillip Blee with William Blair.

Can you just talk about your expectations between volume and price in the second half of the year after some of these price increases that you rolled through in April? And just maybe speak to your confidence in the implied acceleration or level of conservatism potentially embedded in versus the alternative of a more significant cut to your top line guide and giving yourself kind of plenty of wiggle room here?

Philip, thank you for the question. So I would say from a price and volume perspective, the pricing actions that we took in early April, which we talked about were relatively minor. It was on a small portion of our product portfolio, and it was not a significant lift in average price. So -- the impact we talked about to our gross margins was -- in Q2 was around 70 bps. You send that through the year and assume it's over over 3 quarters of the year. It's not a significant move. So I would say it's more volume than price. In terms of our expectations for the year, if you look at some of the things we talked about in Q2 and some of the dynamics in Q2 and how that projects out for the end of the year. One, international, we -- while Q2 came in at just 2% growth, we held our outlook for the year. When we looked at the opportunity in Europe, the growth in Europe, the fact that international DTC continued to grow well, that overall consumer demand, including wholesale sell-through remains strong. Really Q2 came down like we talked about, just order timing and a little bit of caution from some of our wholesale partners in Australia and Canada. So we still feel really good about the year for our overall international business, which is what led to us holding our guide. Second, C&E, when we look at our opportunity in hard coolers, the momentum that our bags business has with innovation, what's happening with Camino, like we feel like bags will give us an opportunity to really continue to return back to growth in C&E in the second half? And then lastly, Drinkware, while the U.S. market is taking a little bit longer to recover than we had expected, we do have the innovation we have planned plus the innovation we've come out with recently. When you look at -- we'll start to comp some of the dynamics that we've talked about in the U.S. drinkware market where you've got a portion of our portfolio that seems -- that started to come under pressure last Q4, we'll start to comp that in Q4, and we believe that will allow us to to get back to growth in Drinkware in Q4. So you pull all that together, and that's what gave us confidence to issue the outlook that we did this morning.

Okay. Great. That's super helpful. And then just on the Camino totes, I mean, obviously, it's gone a bit viral and social media has been sold out. Can you talk about your ability to chase into inventory here to capture some of this demand? And then maybe give some color on the current size of your bags revenue within C&E category and then how this kind of recent influx of traffic and demand is informing your plans for further innovation in the category?

Thanks for the question. We've been -- and you've been around the story for a while. We've been incredibly excited about our bags business and the bags potential. And I think Caminos while it's been a product we've had since 2018, it's been a standout for us in our portfolio and the recent interest in it, I think further emphasizes that. So we're incredibly excited and bullish on the emergence and the continued growth -- accelerated growth we're seeing in our bags portfolio and the potential to expand it in the global relevance in a really large marketplace. So we're going to continue to lean into bags. We continue to make investments in team and talent. We continue to make investments in capabilities. And I think you're going to see that read through in the product portfolio expansion we have there. So we'll -- as it relates to Camino in the near term, obviously, we have an incredibly talented supply chain and an operations team, great partners. We're working to optimize the opportunity in 2025. But really, what we're trying to do is drive sustainable long-term growth and the continued emergence of bags as a really important portion, not only of our C&E but really overall an important part of YETI. So we'll keep growing the Camino as you know it today. As I mentioned on the call, we're going to continue to innovate around the Camino, but really as part of our overall bag strategy, which is going to touch every day, pursuit-specific travel, waterproof. So we're really -- we're excited about what's happening around bags.

The next question comes from Brooke Roach with Goldman Sachs.

Matt, given the success of some of the recent innovation launches, I'd love to get your perspective on the opportunity for these items to scale to the same degree that they could potentially offset lower productivity levels in some of your core? And then for Mike, a follow-up question on the U.S. Drinkware business. Can you provide any color on the level of pressure that the supply chain transition is having on this year's ability to scale new innovation and the magnitude of that potential opportunity as you move into 2026? Maybe said another way, when do you expect the U.S. Drinkware business to inflect back to sustainable growth? .

Thanks, Brooke. Great question. Here's what I would say. I think that the innovation that we're putting out today is as strong as it's ever been for YETI and it's in a much greater assortment, magnitude, which we think yields incredible forward opportunity for the business. This is an interesting year where we -- our pace of innovation, our expansion of innovation has been at its highest level. But as we talked about in your question that Michael addressed around the inventory constraints and the supply chain transformations had a little bit of an impact on that. I think as we think about the expectation from our innovation is, our innovation should deliver 2 things: the continued relevant diversification of our product portfolio, and it should drive forward growth. And that's the expectation we have of all of our innovation. And so when you think about some of our long-standing legacy products, we talk about the dynamic that's happening in Drinkware right now, below the surface, we're seeing what we want to see, which is the traction of our innovation. It hasn't, as we'll talk about in the Drinkware category, it hasn't yet comped against the drag of the market correction that we've seen in Drinkware, but that's what our forward look and some of the commentary we had today gives us confidence on where we're going. And then when you step back, you look at what's happening in drinkware and the expansion and the growth opportunity that we're seeing with our innovation, you put on top of that the incredible range of innovation we're bringing into our soft coolers, I mentioned our day trip line, the expansion of our hard coolers the broad expansion and really untapped opportunity that we have in bags and packs and beyond. It gives us a lot of confidence underneath this brand umbrella of YETI that we continue to invest in and continues to show incredible strength.

And Brett, just to your second question. So we mentioned today that the 300 basis points of top line impact due to supply that we talked about last quarter was still in essentially in our guidance for the year, still having an impact for the year. That's impacting some of our existing products, but it's also having an impact on some of our new products. We've had to shift out the launch of some new products. We're going to be limited in supply in several new products in Drinkware. And the bulk of that 300 basis points is in Drinkware. We've also, for the first time, going to be launching some products outside the U.S. first and exclusively, which is something we've never done before. And as Matt said, we'll start to roll over the -- some of the dynamics that we're seeing in the U.S. drinkware market in Q4. We'll also, we believe -- this is -- given it's such a significant transformation of our supply chain this year, we'll start to get some relief from that in -- as we get into 2026. So when you -- without getting to specifics about when we expect that to start to get back to growth in 2026, we're confident that when you take the fact that we'll start to roll over that compare, we'll get past some of the supply chain constraints that we've talked about, the innovation that we've talked about will start to build. We're confident in what that could mean in our ability to get back to growth in U.S. drinkware. .

The next question comes from Randal Konik with Jefferies.

I think I heard in the commentary, both from a geographic standpoint and a product standpoint, the theme of sell-through outpacing sell-in. Is there any way to kind of get a little bit more granular on that, how much sell-through has outpaced sell-in, as I believe the inventories recorrect in the marketplace and the channel, you should obviously get reorders to pick back up. So it would be super helpful there. And then, Mike, how do we think about -- because everyone is going to start to look through to next year and beyond, you guys have done a great job of kind of staying highly profitable, high margins, had some different moving pieces, whether it's tariffs or other things impacted the numbers a little bit, is there a way that we should be thinking about maybe not quantify the gross margins, but like qualify somehow how we should be thinking about long-term gross margins from a qualitative perspective with the different moving pieces long term. So it would be very helpful to get some thoughts on the different moving pieces there and how we should be thinking about it.

Yes. Thanks, Randy. Thanks for the question. So let me take the first question, sell-through versus sell-in. And let me kind of separate U.S. from international. So in the U.S. we don't give too many specifics or specific numbers around sell-through. We do tend to talk about trends. And the trend that we talked about in the U.S. in Q2 was that sell-through -- while sell-in was down, we talked about sell-through was greater than -- or outpaced sell-in. And really, the color there was around the health of our inventory levels that we continue to manage wholesale inventory level as well, and -- which we believe puts us in a good spot for the second half and going forward. Outside the U.S., I think the main point we wanted to make there is really consumer demand overall outside the U.S. was really strong. And where the weakness was and what led to that 2% growth overall and international wholesale being down was some order timing and overall caution in two markets in Canada and Australia. But when we look at the data we have and our track channels around consumer demand in those two countries, nothing has really changed in our belief in the opportunity and our bullishness for the year, and that's what led to us holding our outlook for the year for our international business. .

As we think about gross margins going forward, I mean, obviously, there's a lot moving around as it relates to tariffs. What we've got baked in our guidance for the year is essentially the latest announcements, 30% total rate for China and an approximately 20% rate for the other countries in which we source -- from which we source. So I think -- the thing that I would say is, there is still some uncertainty there. There's still some things that need to sort of become more clear. But I would say, looking forward, the opportunities that we see in gross margin are continue to work through product cost efficiencies and opportunities to drive down product costs within our supply chain, we've shown a consistent ability to do that, number one. Number two, sales mix. And I think as Drinkware returns to growth, we think that will be an opportunity for us given Drinkware has a higher gross margin than the rest of our portfolio. And there are other pieces of our COGS that we believe we have an opportunity to drive efficiency. And so I think tariffs were obviously at a what we believe is a more stable point now, but it's still pretty uncertain. But we're going to focus on what we can control, which is driving efficiencies within our supply chain costs, which we've shown a pretty consistent ability to do.

Great. And just one last one for Matt. If you think about at the IPO in 2018, the way the company approached innovation and got products developing to market, let's say, in that year. Maybe give us some perspective of what you've changed from a corporate structure perspective, people perspective to change the way you're going about that innovation process and go-to-market process today versus at IPO to kind of dimensionalize how you're able to kind of push out 30 new products a year and getting the market quickly, et cetera. Maybe per helpful to get some perspective of what's changed and what allows you to kind of get things out the door faster and more things at that?

Perk. Thanks, Randy, and I appreciate that question. Here's what I would say. The things that haven't changed is we have an absolute focus on bringing innovative products that represent durability, performance and design, full stop, no change there. Almost everything else has rapidly evolved or changed materially. We went from one team working on everything to three focus teams that are focused around drinkware, the bags and soft cooler opportunity and then many of our other hard goods coolers and otherwise. So focus teams, focused resources. We announced today the Thailand Innovation Center. We've always had incredible global teams, but now we're solidifying that investment to create, as I said in my prepared remarks, almost a 24/7 kind of innovation cycle. The sophistication we built in our supply chain, our procurement team, our sourcing ability, which I think is evidenced by the supply chain diversification and transformation that we've been under. So we have incredibly talented leaders. We've got focused teams. We've got robust product pipelines and I think we've significantly enhanced our capabilities. And then we're very targeted using open innovation to go out and find things that we think are additive to the overall portfolio, including the Shaker bottle designs that we acquired and announced today. So philosophically, nothing's changed. Operationally, execution-wise, I think everything has. And it's made me and my now coming on 10 years at YETI more bullish about the next 10 years.

The next question comes from Peter Benedict with Baird.

So first, just on the EBIT margins, the 220 basis points, I guess, gross and EBIT impact this year. How do we think about the recovery of that divot as we look to '26, '27. Is there any reason why you wouldn't get most or all of that back? I know you talked about some cost efficiencies on top of the tariff stuff. So just conceptually, that's my first question. And my second question is around capital allocation. Why is $200 million of buyback this year the right number? How did you arrive at that level? And then what conditions could or might cause you to do more or less?

Peter, thanks for the question. So while we're not giving guidance beyond '25 today, I mean we can talk in general. I would say, again, on tariffs, there's a lot that's uncertain in terms of where those rates ultimately land. What we're assuming today is what has been announced. So last quarter, we felt like we could recapture much of the impact that we called out, that was at China at 145 and rest of world at 10, now where the rates are, assuming we stay at these levels, which I don't know that we have the same level of recapture we did when we talked about last quarter, given there isn't such a huge disparity between where we've been to where we're moving. But at the same time, we'll have to see what happens with tariffs, but I do want to continue to call out. We do have other offsets within COGS, and we're going to continue to pursue all of those offsets as well as all the mitigation strategies we have around cost. We'll continue to look at price. So I'd say it's too early to say. There's a lot moving around. But I think, again, we've shown a pretty consistent ability to drive cost out of our supply chain. From a capital allocation standpoint, in terms of the $200 million, when we look at our cash flow, we were pleased today to take up our outlook up to $150 million to $200 million. I mean, I think it's -- there's a number of factors that play into it, where our cash is going to be. We want to make sure we maintain a really strong balance sheet, which we've consistently done. We want to make sure that we balance opportunities within acquisitions like the one we announced today. And when we looked at all of those factors, that's essentially how we landed at the $200 million, but we will continue to evaluate it, and we'll continue to find ways to return capital to shareholders, balance with investing back in the business.

The next question comes from Peter Keith with Piper Sandler.

This is Alexia Morgan on for Peter. My first question is about Drinkware. You had mentioned it getting more promotional. You gave some detail there for Q2. I was wondering if you could give some more color on what's driving that dynamic? Like is it more due to competitive promos? Or is it that demand needs stimulated by promos? And then does guidance assume that the promo environment continues in the second half?

Alexia, yes, I'll take that. the comment about the promotional environment is a broader comment about the market. And if you were to kind of go out and see what's happening at retail or you were to go online right now and look at some of the brands out there that there's a lot more activity around pricing. And I think that is a few things. I think it's an indication of the consumer dynamic. I think it is an indication of what we've talked about for a number of quarters, which is as markets have rapid acceleration on the other side of that, that there's a cleanup. And I think if you look at where the promotion is happening, I think some of it's inventory activities by some brands out there. I think some of it's that trend off on certain form factors and sizes, which is what we're watching and seeing in a very concentrated way in the market, but it has an effect on the broader market. And I think how that plays against our strategy, if you look at what we've done over the last couple of years is we have broadly diversified our Drinkware portfolio and our assortment, and we're covering everything from individual use hydration to food bowl, food storage, food transportation. And I think that is a -- I think that's a much broader strategic play, and we think is why to some of the prior questions, we believe in the long-term opportunity of growth in the broadly defined Drinkware category.

And just to the second part of -- just to the second part of the question on our guidance, I mean, essentially what we said was as we took -- the change in our guidance was really around what's happening in the U.S. drinkware market. And I would say heaviest in Q3, we expect Q3 to look similar to Q2. But we do expect things to start to improve in Q4 when we look at the innovation we have coming, when we look at starting to comp some of the dynamics of the market we've talked about. And then that led to the overall -- the change in our guidance. But we do -- while we expect Drinkware to be flat to down slightly this year, we do feel like we're in a position where we can return to growth starting in Q4.

And then just one more. The strong demand for bags in Q2 was very encouraging and then some of the soft coolers going viral in more recent weeks was also very exciting. We were wondering if there has been a focus recently on products or in this case, like new colorways geared more towards women? Or were those just new colorways that happens to go viral?

Great question, Alexia. What I would say is I think what you're seeing is great products getting in front of consumers. And I do think color matters in the range of color. But if you look at what's happened in the market in the last few weeks, we have this incredible Wetlands Camo that's had really great market receptivity, and we have Caminos in a range of colors that continue to go in and out of stock. And so I think what that speaks to is the broad-based receptivity to our innovation but also our relevance across a diverse -- an important audience to us. So that's across a range of demographics, across a range of pursuits and use cases. And that's been the strategy for YETI going back to the very beginning, and I think we're seeing the success of it play out. .

The next question comes from Joe Altobello with Raymond James.

I guess first on the momentum that you touched on a little bit coming out of Q2 and into Q3. Can you contextualize that for us? What sort of sales lift are you seeing here in July and August, but in particular, international? I mean, you mentioned that, that was sort of a 1-quarter phenomenon. Are you seeing that international business back up into the double digits here in early Q3?

Joe, thanks for the question. So yes, I mean, so I think we're not getting too specific on what we're seeing. I mean, we're encouraged by what we're seeing so far this quarter. I'd say the same thing as we apply to it as we exited Q2. And I really -- I think the best indication of what we're seeing and how we're encouraged we are by it is the fact that we held our outlook for international for the year to grow 15% to 20%. So when you look at growth in the second half versus what we did in the first half, yes, I mean, I would say that we're back up to those growth rates that we had seen. And as a reminder, I mean, we posted 7 quarters in a row of over 20% growth outside the U.S. And so up until this one. So we feel good about our international business in the second half and obviously, what we're seeing so far in Q3.

Got it. Helpful. And just to follow up on that. I wanted to ask about the other category. I know we hardly ever talk about it. It's a very small from a revenue standpoint, but it's been pretty weak of late. Is that an indication of how people are engaging with the brand because there's a lot of apparel in there, et cetera. So I'm just curious how we should look at that. Is that sort of a canary in the coal mine? Or it's just kind of a sort of a rounding error?

No. I mean I don't think that's an indication all of how people are engaging with the brand. To your point, it's a really small piece of our business. I would say changes in merchandising and sort of marketing strategies can play an impact on that. Freight revenue hits in there as we work to drive people to our yeti.com and create accounts so we can drive more engagement with our customers. We've done some things with shipping that can play a role within other, but nothing has changed at all in terms of what's hitting in there, or I don't -- I would not read into that at all, that is an indication of how people are engaging with the brand.

This concludes our Q&A session. I'll hand the call over back to Matt Reintjes, Chief Executive Officer, for closing remarks.

Thanks all for joining today. We look forward to speaking on our 3Q call. Have a wonderful week.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

All right. Good morning, everyone. We're going to go ahead and get started. My name is Phillip Blee. I'm the consumer analyst here at William Blair covering YETI. Before we get started, I just wanted to remind you for a full list of disclosures, please visit our website. So with that out of the way, I'm excited that we have CFO, Mike McMullen here from YETI. It's been a fun story to watch. They've developed a fiercely loyal consumer across different communities. They're changing a lot of different things. There's a lot of innovative and exciting products in the pipeline. International is still very much in early days. So just a lot of different avenues for growth.

So Mike, I want to start, you've been with YETI for almost 10 years now. Can you talk about -- give a little background on the brand, how the brand has evolved over the past 10 years? And then how you kind of see that changing over the next 10 years for growth?

Yes, definitely. Thank you, Phillip, for having us. We're thrilled to be here, and thank you, everyone, for coming. When I started at YETI in 2016, we were -- we had a pretty limited set of products, including just 2 drink Drinkware SKUs. We were over 90% wholesale. We were not only 100% in the United States, we were almost entirely in the South and Southeast part of the United States. And as we set out to change that, to develop a growth strategy that was -- and what we announced when we went public in 2018, we really said we were going to focus on 4 things: number one, expand our customer base; number two, accelerate D2C; number three, launch new products; and number four, expand internationally. And I think those 4 things still stand true today. When I started, we were primarily a brand that was most popular in the Hunt-Fish communities.

Now we focus on over 15 different communities across a range of pursuits while also still staying core to those original Hunt-Fish communities in that Hunt-Fish consumer. We've expanded -- we now have a product of over 60 Drinkware products, over 30 products in coolers, hard and soft coolers. We also have a range of -- our line of protective cases, outdoor chairs and a growing bags portfolio that we're super excited about. From a channel perspective, when we went public, we were 60% wholesale, 40% D2C. Now we're the inverse of that. We're 60% D2C, 40% wholesale. That includes not only our own e-commerce sites that we have around the world and a business on Amazon, a corporate sales business as well as our own retail stores in the U.S. and Canada. Much of that omnichannel market is not -- our omnichannel model is not fully developed outside the United States. So we feel like we still have room to continue to build out our D2C business.

And then finally, outside the U.S., in 2016, we -- like I said, we had 0 sales outside the United States. We'll do close to $400 million this year. Much of that is from 2 countries from Canada and Australia. We have a presence in the U.K. and Europe, but it's smaller, but it's growing very rapidly. And we're really excited about what that can be given the size of the markets in the U.K. and Germany specifically and that the way that the brand is resonating there. And then finally, we'll start shipments in Japan this quarter. We've decided that in large markets, we want to go direct and Japan is the first step in doing that in Asia. And we're really excited about the initial conversations that we're having there. So we're a very different company, certainly from when I started, but from even in 2018 when we went public, we're much bigger, more profitable. But the core of what the brand is in those original communities has not changed.

Excellent. You talked about this a little bit, but I want to dive a little bit deeper. There's been a lot of new products that you've been coming into that are powered cooler, which I think is pretty exciting. So can you kind of talk about what the growth contribution of those type of new products are? And then maybe how we should think about category expansion or top line diversification going forward?

Yes. So I mean, you hit on a lot of them. I mean, if you look at some of our -- what you would call our core categories, coolers and Drinkware, I mean, coolers had a great quarter in Q1. We've been in the cooler business since the day that YETI was started in 2006, but yet we still continue to drive growth in that category through innovation. Much of that has come from the 2 latest products that we've introduced, the Roadie 15 and the Roadie 32 that are smaller, more personal, bring mobility, things that consumers really, really value. On the soft cooler side, we just came out with a line of thermal bags, the day trip line, 4 new products that we think really hit a need in the market that's still a place in our portfolio with a range of prices where we didn't have -- we had nice soft coolers. These kind of fit in that $50 to $150 price point line. So we feel really good about the growth opportunity of those as well. In Drinkware, you've seen us continue to expand. We use the term drinkware, but it's more -- it's broader than that. Like you said, we're moving into food and food storage.

The first step was the introduction of premium cast iron cookware, but we started to move closer to -- more into food and food storage that fits with the rest of our cooler portfolio. So we continue to find ways to drive innovation in those core categories. Bags is something we're super excited about. Like you said, we acquired Mystery Ranch in Q1 of 2024. We had an existing line of bags when we did that. But you're going to see us start to take some of that -- the great line of products that they had and start to rebrand as YETI and relaunch. The first wave of that was in Q1 with the Ranchero. We followed that up with the Cayo launch earlier this quarter. And that's going to be a continual thing that you see us do. We've hired a gentleman, the former CEO of Osprey to Layne Rigney Rage to run that business for us. We've announced that we have a bags design and development center in Denver that we've launched. So we feel like we've got the right leader, the right team with the right capabilities that allow us to be successful in what we believe is a significant category that will allow us to continue to grow.

Okay. Great. Out of maybe some of those, are there any that you think could be particularly impactful that you're very excited about or maybe some that could serve as stepping stones into categories with even larger TAMs, kind of building your credibility there? And then any hint into what the powered cooler looks like?

Yes. So I'm particularly excited about bags. I just think -- I think it's a natural place for YETI. I think it's a category that values the things that YETI brings from a product perspective and design, durability, performance. And I also think it's a significant category with a lot of room for growth. I think in terms of things that are stepping stones, I think what you're seeing us do in what I would call the food categories, I think we will continue to move into areas that allow us -- you saw it, the campaign was around the outdoor kitchen. And I think there's a -- it's a natural fit for us. Our products are often used around the outdoor patio, the grill, the outdoor kitchen.

And so I think that's a natural extension for us where we can come in and bring some innovation to meet consumer needs. And so to me, that's super exciting. The powered cooler, we've gotten a lot of questions about that. Well we announced was we acquired the IP and the capabilities around a powered cooler platform. Essentially, what that means is a cooler that doesn't need ice, one that can run off power. There are a lot of parts of the world where access to ice is not as easy as it is here in the United States. And we think there is an opportunity. There are some products in the market, and we think there's an opportunity for that to be -- for some innovation in that category, and we think it will resonate, particularly with a global customer.

Yes, absolutely. Great. And then I want to talk a little bit about marketing because I think that's one of the more compelling aspects of this brand. You have a very nuanced approach to marketing. It has almost grassroots, very localized feel to it. And it also attracts a very diverse set of customers, right? Like I'm sure very many people here in this room own YETI products. You also have a big presence with ranchers and Fisherman. So I mean, can you talk about maybe the broader demographics of your consumer and then how you kind of continue to evolve your marketing strategy to attract new sets of customers without eroding the brand, especially as you go into more of these product categories that you talked about?

Yes. So first, I appreciate all the YETI consumers in the room and listening online. Yes, you're right. I mean we -- I personally think that our marketing team is the absolute best in the business at what they do. They do a phenomenal job of as we have grown, as we have moved into new communities, as we have grown internationally to make sure that the core of the brand stands true to what it is but still resonates in new areas, in new geographies, in new communities. And it comes down to -- when we expand internationally, we really focus on localizing the brand and making sure that it feels -- it's still got the core of what the brand stands for, but also resonates with that -- the consumer in that market.

Nothing makes our marketing team feel better than when someone says, "Hey, I thought YETI was actually an Australian brand", which we've heard before. And so we'll continue to do that as we expand into new markets. New communities. I mean, like I said at the beginning, I mean, I think they have -- our marketing team has done an incredible job of making sure that as we've expanded that we've stayed true to our roots in those original 2 communities of hunt and fish. And they run a very similar playbook. We focus a lot on what we call community marketing, where we're going in, we're building relationships with ambassadors and trusted sources in those communities. We're telling stories with them. We are -- we establish relationships through sponsorships and partnerships. And that's how we build relevance in those communities, and we'll continue to do that.

In terms of our consumer, when I -- like I said, when I first joined the company, we were primarily a -- what I would say, our consumer was primarily male. We're much more balanced male, female now. I would say we are much more balanced in terms of the type -- the pursuits that our consumers participate in. And I would say that we're not just a brand that is focused on the high-end consumer. We have price points that range from $20 all the way up to $1,500. And so we have a range of price points that can meet the need. We're a big gifting brand. And so we think it's important to have a very wide range of pricing, and we've focused quite a bit on that. So it all kind of comes back to the same -- what I've talked about is we have evolved as a brand, but we've stayed true to who we are.

Okay. Great. And then since you have such a wide consumer base, can you talk maybe just a little bit about what you're seeing in the overall consumer environment right now? Obviously, there's a lot of different things going on, to put it lightly. And then you recently brought down your full year guide. Can you talk about how much of that is maybe pressure in discretionary spend from the consumer versus maybe some of the more strategic sourcing decisions and inventory constraints?

Yes. So in -- when we gave our initial guidance for the year in February, we called for revenue growth of 5% to 7% this year. When we announced in May, we updated that to 1% to 4%. The biggest piece of that is we said we expected about 300 basis points of lower growth due to supply chain disruption. When the significant tariffs were announced in April, we were already undergoing a process to move our supply chain, Drinkware manufacturing out of China and into other countries. That was already underway. But when the higher levels of tariffs were announced in early April, we accelerated that. We believe that by the end of this year, we will largely be out of China. Only 5% of our SKUs -- or 5% of our COGS will be exposed to products that are made in China and imported into the U.S. by the end of this year. And we're very proud of the work that the teams are doing there to accelerate that. But it is coming at somewhat of a cost. As we're moving the production, we are going to be constrained on new and existing products as we ramp down the production in China and ramp up and the production in other countries.

Also, there are a number of new products that we have decided to either push out to 2026 or we would launch just outside the U.S. and not in the U.S. And we know we're going to be constrained on new products as well as we ramp that supply. So that's coming at about a 300 basis point impact to our growth this year. But it's the right thing to do for the -- not only long term, but from a cost perspective. The other thing is we did start to see some signs of softness in the consumer level earlier this quarter. We've seen some caution from our wholesale partners. And so we felt it was prudent to widen our guidance a bit to account for that. And so we're seeing signs of strength in parts of our business. Our Amazon business has done very well. Our corporate sales business has done well. Outside the U.S., we continue to grow. But we felt it was prudent just because we do believe that there are some signs of the consumer being a little more discerning of wholesale partners being a little more cautious to go ahead and account for that in our guidance.

Okay. Makes sense. And then what about -- just there's been some discussion about outdoor being a little bit more pressured this year, the category just in general, ahead of peak season. Kind of any color there? Have you seen similar weakness or expectations for the category this year?

For outdoor?

Yes, just outdoor.

No. I mean, not any different than what I mentioned earlier. I mean, like I said, we -- our products resonate across a range of pursuits and communities. But I wouldn't say that outdoor for us is -- it's all part of the guidance that we issued in May.

Great. And then I want to take a little bit of a deeper dive into Drinkware. Drinkware has been a very strong category over the past few years. I think it's grown at a 15% CAGR. Recently, you've seen a little bit more softness there in the U.S. sales have declined over the past few quarters. Can you talk a little bit more about the drivers there? Is it more fatigue in the category after such a quick ramp? Or are there other kind of factors to consider?

Yes. I mean you're right. I mean if you go look at -- when we went public in 2018, Drinkware was around a $400 million business. Last year, we did around $1.1 billion, so over 2.5x the size and more profitable in 2024. Drinkware over the last few years, the category itself has seen a significant run-up and we have continued to grow through that. I think it's fair to say that, that growth was driven by a few competitors entering really focused on a narrow set of solutions or a narrow set of products, more of a product growth as opposed to brand growth or category growth. Our focus has been different. Our focus has been we want to play there, but we also want to really offer a range of solutions and a broad set of solutions. We've grown our category, our Drinkware business to over 60 SKUs, and we're going to continue to push that up further.

We believe that right now, there is some settling going on in the drink bird category that's the other side of that significant growth in the U.S. specifically. But we believe over time, the brands that are going to win are the ones that have a range of solutions that offer a wide, a broad portfolio that meet a range of consumer needs that have a history of innovation in launching new products to reach new consumers, to come out with new products that meet consumer needs as they change because the underlying drivers of the category haven't changed. There's still a focus on hydration. There's still a focus on people moving away from single-use plastic. And so we continue -- we believe that those are going to continue to be drivers of the category and that the brands that will live on are the ones that have a history of being able to not just focus on a particular narrow set of products, but a range of solutions.

Okay. Great. And then have retailers pulled back at all and just in Drinkware for the category, maybe more broadly? And what do you think the consumer needs to really see from the category or maybe from your brand in order to get more excited about it again?

Yes. I mean there is some -- like I said earlier, there's some just general caution at the wholesale level right now. I will say, I obviously can only speak to our brand and what we're seeing. We have not seen instances of us shelf space going down from a YETI perspective with our wholesale partners. We feel really good about where our wholesale inventory is in the channel right now. We've got a very broad diversified wholesale footprint across -- from a regional perspective, from a pursuit perspective between hardware to sporting goods, to outdoor. And we have really, really tight relationships with our wholesale partners.

So we feel really good over the long term about where that business is and where that business can go. In terms of the consumer getting excited again, I mean, like I said, nothing in my mind has changed or in our mind has changed in terms of the drivers of the category. We think those are going -- those are here and those are going to stay. I do just believe there's some settling after a significant run-up in the category. And we'll start to lap that later this year. And coupled with some of the new innovation that we have coming later this year, that's why we feel good about the growth as we enter the second half.

Great. And then maybe just switching gears to coolers. The category has remained resilient. You posted great growth in the first quarter. Can you talk about the ongoing opportunity in that category? How much juice is left to squeeze there? And then how do you hold off competitors kind of creeping in? There's a lot of kind of YETI lookalikes maybe. How do you prevent them from coming in and trying to undercut you on price?

Yes. Yes. Like I said, we've been in the cooler business since we started in 2006. And we had a great -- we had a good year last year, and we had a great Q1 in coolers. Hard coolers, our longest-standing category was one of our fastest growing in Q1. And we did that by coming out with new innovation, new products that give consumers a reason to come back to the brand. It also helps us reach new consumers that may not be interested in the big Tundra 65 that they can put in the back of their truck. And so we're going to continue to do that. And I think the powered cooler innovation that you mentioned earlier, I think, will be the next step of that. In soft coolers, soft coolers continue to grow.

We still maintain -- we think soft coolers can be bigger than hard coolers on a global basis. They're not today. And we just came out in the last week or so with a new line of sort of portable individual thermal bags, which we think can be a nice piece of our soft cooler business. And so we continue to be really excited about what we can do in coolers. We think the brands that are going to win -- we think when you couple a great brand that is trusted by consumers with great product, we will continue to hold -- to maintain our position in that category. And we've had competitors in coolers since the day we've started in this business. It's not anything that's new or recent, but we're going to continue to do what we have done, which is maintain the brand, come out with new product and continue to grow.

Great. So then I want to talk a little bit then now about international. Still very early days here. I think a lot of people can appreciate the long runway you have there. Just announced entry into Asia through Japan this year. How should we think about growth in this segment going forward?

Yes. So like I said in the introduction, we'll do $400 million or so of business outside the U.S. in 2025. That's primarily in Canada and Australia. We've been in those markets since 2017. And so those markets are -- will start to be less of a contributor to growth, but the growth will come from other places. We are really starting to see a lot of momentum in the U.K. and the rest of Europe. When you look at the market size in the U.K. and Germany, it's a multiple size bigger than either Canada or Australia. Our business is nowhere near as big in those markets as it is in Canada and Australia. So when you look at where we are from a -- the size in our Germany, we think there's tremendous amount of growth opportunity ahead of us. And we think the brand is resonating. We were on an NDR through Europe a few years ago, and we went to an outdoor cooking festival outside of London.

And it felt -- that YETI sponsored. It felt as I could have been in Houston or Chicago or Brooklyn. It felt as authentic. The brand felt as authentic there as it does anywhere in the U.S. And so we're going to continue to do things like that to make sure that people get exposed to the brand. Our awareness is what is just low right now in Europe. And we're just getting started in Asia. We'll start shipments this quarter. This year is about establishing wholesale relationships. It's about signing up a 3PL, putting in an ERP, building a team. But we had a sales event in January that a number of members of our senior team, including Matt, attended. And the excitement was really, really cool to see. They appreciate premium products. They have a love of the outdoors. It's a natural fit for us. But Japan is just the first step. We'll then move into other parts of Asia that we think can be equally as exciting.

Great. All right. Well, then let's get into everyone's favorite topic, tariffs. On the earnings call back in May, you talked about $100 million EBIT headwind gross before any mitigation efforts. You expected to delay some product innovation. You talked about that earlier. Just a few days after you reported, found out that temporarily, Chinese tariffs were coming down at 30%. So how have these changes kind of impacted your outlook? And maybe how quickly were you able to react from a supply chain standpoint?

Yes. So I mean, just to reiterate what Phillip said. So we announced -- when we announced our Q1 results, we said we'd have about $100 million of cost -- gross impact to cost of goods due to tariffs in 2025 and about 450 basis points impact on our gross margin after mitigation. So that's about $80 million. That was assuming what was in place at that time on May 8. On May 10 or the next week, tariffs in China went from 145% to 30%. So clearly, that provides a -- some lower cost as we look out for the year. We haven't updated our outlook, obviously, and -- other than to say there is some favorability now. And the reason we're cautious is that it could change at any time. And so -- but if you look out at that $20 million of mitigation should stay even in a lower tariff scenario. The -- it's not perfectly linear in terms of knowing throughout the year in terms of taking it down from 145% to 30% and then using a time factor, but it can give you an approximation.

The wildcard is how long these lower tariffs last. And so that's something that we're -- we didn't want to try to speculate and predict. We wanted to put out guidance that -- of what was in place at that time. The priority, though, this year is getting out of China and moving to other parts of the world. The 90% of that $100 million that we called out was from China. So I think the most important factor through all this is this is largely a 2025 issue for us. By the end of this year, on a go-forward basis in terms of what we're buying, we will have very limited exposure to goods sourced from China and imported into the U.S., which means as we go forward, we will be able to recapture much of that 450 basis points of lost gross margin in 2025. And I think that's the most important point.

Absolutely. All right. And then lastly, I just want to talk about balance sheet and cash flow. You're expecting to have over $100 million of free cash flow this year, very little debt. You've been increasingly active in M&A and share repurchases over the past year. So can you just talk about a little bit about your capital allocation strategy and then maybe any kind of near-term, long-term nuances given all the craziness in the current environment?

Yes. So we ended Q1 with $260 million of cash. We have just under $80 million of debt. We originally thought we'd do north of $200 million of free cash flow with what's going on with tariffs, that's going to come down, but we still will do $100 million to $150 million of free cash flow this year. So we feel really good about our balance sheet, and we feel really good about our ability to generate cash. Last year, we did $200 million of buybacks. We did $75 million of M&A across 3 acquisitions. We're going to continue to do that going forward. We haven't put a number on the buybacks that we will do this year other than to say we do expect them to be part of our capital allocation strategy this year.

M&A, obviously, a little harder to predict. But we view M&A, our strategy has been, it's a way to accelerate innovation. We do not -- we have said consistently that we do not believe that building a house of brands is in -- is our focus. Our focus is on using M&A to accelerate product innovation and to fill out the portfolio. So nothing has changed there. But we believe we can do all that and reinvest in the business while also maintaining a really strong liquidity position given our current balance sheet and given our ability to generate cash.

All right. Excellent. Thank you very much, Mike. And then we will be in a breakout room for [ Adler ] right after this. Thank you, guys.